. 1999 countries billion, with billion. 75 billion, people during billion. EUR 3.8 EUR 14.4 EUR 2.9 85,000 were
employees, Acordis employees, EUR 2.2 ▼ COMPANY STATEMENT COMPANY (please turn over) . billion, and 1999 17,000 1999 With Akzo Nobel has a two-layer top structure: top Nobel has a two-layer Akzo and business units in Pharma, Coatings, center. a corporate and Chemicals, in the Netherlands, Headquartered Akzo Nobel has activities in and employed and employed EUR 5.5 The corporate center coordinates key center coordinates The corporate finance as strategy; in such areas tasks human resources; and control; and intellectual technology; legal affairs communications; health, safety, property; information and environment; management; and risk and insurance management. PROFILE Nobel is an international company Akzo the world around customers that serves and coatings, products, with healthcare which business, The fibers chemicals. under company as a stand-alone operated at year- divested was the name Acordis, end Pharma, Coatings, and Chemicals Pharma, Coatings, accounting for Sales in contributed Annual Report 1999
Akzo Nobel Annual Report 1999 Gross cash flow Operating income before nonrecurring items plus depreciation of property, plant and equipment, and amortization of intangible assets
Cash flow per share Net income excluding extraordinary and nonrecurring items plus depreciation of property, plant and equipment, and amortization of intangible assets, divided by the weighted average number of common shares outstanding
Net income (excluding extraordinary and nonrecurring items) per share Net income (excluding extraordinary and nonrecurring items) divided by the weighted average number of common shares outstanding
Shareholders’ equity per share Akzo Nobel N.V. shareholders’ equity divided by the number of common shares outstanding at December 31
Working capital Inventories and receivables less current liabilities, exclusive of dividends
Invested capital Total assets less cash and cash equivalents and less current liabilities
Equity Akzo Nobel N.V. shareholders’ equity plus minority interest
Net interest-bearing debt Long-term debt plus short-term borrowings less cash and cash equivalents
Gearing Net interest-bearing debt divided by equity
Interest coverage Operating income before nonrecurring items divided by financing charges
In the computation of ratios, the amounts used for invested capital and shareholders’ equity represent averages for the year. CONTENTS
2 Financial Highlights
3 Chairman’s Statement
6 Corporate Governance
8 Report of the Supervisory Board
12 Milestones in 1999
13 Report of the Board of Management
13 General 13 Strategy 13 Financial Performance 17 Dividend Proposal 17 Outlook for 2000 18 People at Akzo Nobel 18 Research and Development 18 Engineering 19 Health, Safety, and Environment 19 Akzo Nobel in Society 21 Akzo Nobel Shareholders
23 Business Activities 24 Akzo Nobel’s Products and Markets 26 Key Figures and Ratios 29 Pharma 39 Coatings 49 Chemicals
59 Acordis
63 Financial Statements
64 Summary of Significant Accounting Policies 66 Consolidated Financial Statements 77 Financial Statements of Akzo Nobel N.V.
84 Other Information
84 Auditors’ Report
87 Financial Summary
AKZO NOBEL ANNUAL REPORT 1999 1 FINANCIAL HIGHLIGHTS Net income, excluding extraordinary Operating income before and nonrecurring items, Net sales nonrecurring items and dividend per common share (billions of euros) (millions of euros) (in euros)
95 96 97 98 99 95 96 97 98 99 95 96 97 98 99
15 1,500 3
10 1,000 2
5 500 1
Pharma Coatings Chemicals Acordis 0 0 0
Excluding Acordis Millions of euros (EUR) 1999 1998* 1999 1998
Net sales 14,432 12,482 12,190 10,535 Operating income – before nonrecurring items 1,364 1,242 1,426 1,178 – after nonrecurring items 1,323 1,077 1,385 1,033
Net income excluding extraordinary and nonrecurring items 759 703 Net income 204 574 Cash flow 1,005 1,273 Shareholders’ equity 1,861 1,899
Property, plant and equipment – expenditures 797 819 690 684 – depreciation 740 661 582 530
Per common share, in EUR Net income excluding extraordinary and nonrecurring items 2.66 2.46 Net income 0.71 2.01 Cash flow 5.33 4.82 Dividend 1.00 0.98 Shareholders’ equity 6.51 6.66
Key ratios Operating income before nonrecurring items – as percent of net sales (ROS) 9.5 10.0 11.7 11.2 – as percent of invested capital (ROI) 15.5 16.2 20.0 18.9 Interest coverage 5.0 6.0 Gearing 2.26 2.30
Number of employees at year end 68,000 85,900 68,000 67,600
* Restated for change in accounting principles. Reference is made to Change in Accounting Principles on page 64. ▼ For definitions of certain financial ratios and concepts 2 see back cover foldout. CHAIRMAN’S STATEMENT
Dear Shareholders,
Announced as a year of consolidation, 1999 proved to In view of the great uncertainties in the world economy be one of the busiest years in our recent history. Almost at the end of 1998, we had refrained from giving an 30 years to the day after the creation in 1969 of Akzo, income forecast for 1999. As the year progressed, we with fibers company AKU as one of the founding fathers, indicated that a net income of the same order of we took the historic decision to separate from Fibers. magnitude as in 1998 would be achievable. We are At the same time, the acquisition of Hoechst Roussel happy to report that this target has been surpassed Vet (HR Vet—our third largest acquisition ever— with a net income of EUR 759 million, excluding catapulted us into the top league in the world animal nonrecurring and extraordinary items. As a result, a per health market and thus further strengthened our share dividend of EUR 1.00 will be proposed to the position in pharmaceuticals. But, as planned, the General Meeting of Shareholders. general emphasis was on consolidation and allocation of special management time to the integration of the The economic environment in which these results were companies acquired in 1998, and on the restructuring achieved, can be characterized by a weak start but a of our Corporate head office. We also brought strong finish. In the first two months, all economic investment levels close to depreciation. All these moves indicators were still down, but March surprised us with strongly affected our financial statements, which are its unexpected strength. The U.S. economy continued therefore difficult to compare to previous years. its strong performance, and the smaller countries in Europe, including Scandinavia, Ireland, the Benelux, Strong performance of continuing operations and Spain, followed in its wake. The major economies of Germany, France, Britain, and Italy were initially lagging Our sales, net of acquisitions and divestments, grew behind, but as the year advanced they began to gain 5 percent. Pharma achieved double-digit sales growth momentum as well. Asia showed a remarkably quick for the third year in succession, while Chemicals and recovery, with some countries achieving growth rates of Coatings resumed real growth, with sales volumes up over 5 percent by the middle of the year. The strong 5 percent in the second half of 1999. These sound rates dollar underpinned this process of recovery. helped offset the really dramatic downturn in trading conditions for our Fibers operations: volumes in some textile segments dropped 40 percent in 1999, a decline unparalleled since the crisis in the seventies.
AKZO NOBEL ANNUAL REPORT 1999 3 Against this general backdrop, our Pharma operations employees has strengthened our conviction that it was broke all previous records. Organon’s U.S. subsidiary the right thing to do. was the star performer, increasing its sales by more than 50 percent for the third consecutive year. Fibers’ exit has fundamentally changed the composition Employing 500 salesmen in 1996, it entered the new and face of Akzo Nobel. Whereas in 1969 we were millennium with 1,250 reps. Organon also structurally largely a Fibers company, today we are much more strengthened its position in Japan by acquiring the balanced. We are growing fast in pharmaceuticals, pharmaceutical business of Kanebo. By the end of the where we hold a leading position in, among others, year we acquired HR Vet, a long coveted partner for female healthcare and have become a world player in Intervet. We now have a full product range— animal healthcare. We are the world’s leading coatings pharmaceuticals and vaccines—with virtually worldwide company with a broad platform for further growth and coverage in the animal health market. Diosynth and hold leading positions in important markets for Organon Teknika also put in strong performances. specialty chemicals. Each of these three basic activities contributes substantially to operating income: Pharma The many acquisitions in coatings made in 1998, but by 40 percent, and Coatings and Chemicals in the order particularly that of Courtaulds, called for sustained of 35 and 25 percent. Given these three activities, the integration and consolidation efforts in 1999. Even so, market sees us as well focused. Coatings managed to produce healthy growth figures. Industrial sales were higher and, helped by a much Positive outlook better summer, Decorative Coatings’ sales in Europe clearly exceeded previous years. Unfortunately, we had A better balanced company should also have higher to divest the aerospace business of the former ambitions. We will focus strongly on value creation and Courtaulds, following a decision by the European reinforcement of internal coherence with strong antitrust authorities. The average operating margin emphasis on optimal exploitation of the synergy improved, reflecting strict cost control. potential between our businesses.
An unexpected recovery in the world chemicals market The macroeconomic outlook for Europe is positive for led to a strong sales and income performance for the year ahead, and no fundamental weakening of the Chemicals, particularly in the second half of the year. U.S. economy is foreseen. Asia and Latin America Most satisfying, however, is the fact that we clearly see continue to show a recovery to growth rates typical of the results of the heavy investment and profit emerging markets. In light of this scenario and improvement programs embarked upon in recent years. assuming that no major currency disturbances occur, Most business units did better than in 1998. Just we should be able to achieve a double-digit growth rate before the end of the year, we sold our 50-percent for our net income excluding extraordinary and stake in PVC joint venture ROVIN. nonrecurring items.
Fibers separated Our balance sheet reflects the consequences of this turbulent year: the acquisitions, particularly of HR Vet, The dramatic downturn in the textile fiber markets was and the divestment of Fibers, which took place in 1999. singularly unsupportive in the integration of the former The proceeds from the sale of Acordis reflect the Courtaulds and Akzo Nobel fibers activities into the market value of the business but led to a book loss. new Acordis. But our determined efforts to execute our plans in spite of these serious adverse conditions paid All in all, these two transactions boiled down to a off. We regret that Fibers’ last year in Akzo Nobel massive investment shift from fibers to healthcare, ended with an operating loss of EUR 62 million. which strengthened our asset base in line with our However, the timing for the launch of Acordis as an priorities. Simultaneously, we were able to reduce our independent company was exactly right as the bottom interest-bearing debt. of the trough now seems to have been reached. After so many years, a separation of this magnitude is a complex and traumatic affair. However, the unequivocal support of the decision by Acordis’ management and
4 A memorable year for our employees Board of Management Has served in this or For our employees 1999 has also been a memorable similar capacity since: year. A sustained effort was made throughout the company to prepare for the millennium and as a result Cees J.A. van Lede (1942, Dutch), Chairman 1991 we can look back with satisfaction on a smooth Fritz W. Fröhlich (1942, German), Deputy Chairman 1993 transition to 2000. Paul K. Brons (1941, Dutch), Pharma 1994 Ove H. Mattsson (1940, Swedish), Coatings 1994 Unfortunately, our company was not exempt from Rudy M.J. van der Meer (1945, Dutch), Chemicals 1993 human tragedy. Earthquakes occurred in a number of countries where we are active, the one in Turkey being particularly devastating. We mourn the death of two of our Turkish colleagues but were impressed by the Secretary prompt action taken by our local company and its Bart C.M.I. Beusmans (1940, Dutch) 1996 management to organize immediate relief for our employees. Senior Vice Presidents Frits H. Hensel (1943, Dutch), Finance 1997 We continue to strive for a zero accident rate, because Olle Werner (1944, Swedish), Human Resources 1997 “no one comes to work to get hurt!” More emphasis has been given to the preventive side of health and safety this year. Nevertheless, we have to report that a serious accident in our Chemicals plant in Deer Park, Texas, severely injured two persons.
We will remember 1999 as a historic year: the year in which we separated from Fibers; the year in which we became a world player in animal healthcare; the year in which we consolidated many activities; and the year in which we had to respond to human tragedy.
It is with pride and personal satisfaction that we thank our employees for their efforts in serving the best interests of the Company over the past year. Under often difficult circumstances, the combined contributions of all employees made it possible to attain the goals we set.
Cees J.A. van Lede Chairman of the Board of Management
AKZO NOBEL ANNUAL REPORT 1999 5 CORPORATE GOVERNANCE
General Management to issue new shares up to 10 percent of Akzo Nobel N.V. is a public limited liability company the issued and outstanding number of common shares (Naamloze Vennootschap) under Netherlands law, and to restrict or exclude the preemptive rights of the registered in Arnhem. The responsibility for the conduct existing shareholders in respect of such new issues. of Akzo Nobel’s business is entrusted to the Board of Currently, such power has been granted for a period of Management under the supervision of the Supervisory eighteen months effective from the General Meeting Board. held on April 22, 1999.
Shareholders Any holder or holders of common shares, representing Akzo Nobel has three classes of shares: common at least 1 percent of issued common shares, may shares, cumulative preferred shares, and priority submit proposals in writing for the agenda of a General shares. At December 31, 1999, only common shares Meeting at the Company’s office at least six weeks in and priority shares had been issued. advance of that meeting. The Board of Management may decide not to accept such proposals on the General Meetings of Shareholders (General Meeting) grounds that they are evidently not in the Company’s are held at least once a year. All resolutions are made interests. on the basis of the “one share one vote” principle. The Annual General Meeting reviews the Annual Report and Proxy voting decides on adoption of the financial statements and the With effect from 2000 Akzo Nobel shareholders will be dividend proposal, as well as on the discharge of the offered the possibility to participate in a three-year Members of the Board of Management of their pilot project for a proxy voting system developed by the responsibility for the conduct of the business, and the Shareholder Communication Foundation, the members of the Supervisory Board for their Amsterdam Exchanges, and the major Dutch banks. supervision. With the exception of a number of special Akzo Nobel is one of the founding companies of items, such as amendments of the Articles of the Foundation. Association, all resolutions require an absolute majority. The General Meeting approves nominations to The priority shares are held by the Akzo Nobel the Supervisory Board and the Board of Management Foundation, established at Curaçao, Netherlands and decides on the issue of new shares and the Antilles. The Foundation’s board consists of the restriction or exclusion of preemptive rights of existing members of the Supervisory Board and of the Board of shareholders. The meeting may empower the Board of Management of Akzo Nobel.
6 With respect to any appointments or reappointments of Board of Management members of the Supervisory Board and the Board of The Board of Management is responsible for the Management by the General Meeting, the Meeting of management of Akzo Nobel and its businesses. The Holders of Priority Shares has the right to submit a number of the members of the Board of Management binding nomination of at least two persons for each is fixed by the General Meeting on the proposal of the vacancy. The latter meeting also approves proposals for Meeting of Holders of Priority Shares. Members of the amendments of the Articles of Association. Board of Management may be removed from office by the General Meeting on the proposal of the Supervisory No preference shares have been issued to date. Such Board. A resolution to remove a member of the Board shares may be issued for funding purposes and are not of Management other than on the proposal of the subject to restrictions on transfer rights or to Supervisory Board requires a majority of at least two- limitations on numbers held by any person. Any issue of thirds of the votes cast at the General Meeting. As a such shares by the Company will be at or near the rule, the members of the Board of Management step prevailing market price for common shares. down at the Annual General Meeting of the year in which they reach the age of 62. Supervisory Board The Supervisory Board, which solely consists of Akzo Nobel fosters continuous awareness of Corporate nonexecutive members, exercises supervision over the Governance throughout the organization. The Board of Management’s policies and business conduct Company’s coherent internal structure of management and provides advice. In the performance of their duties and control is not limited to financial control but also the members of the Supervisory Board act in the relates to such issues as integrity, compliance with Company’s best interests. internal and external rules and regulations, human resources, and health, safety and environment The number of members of the Supervisory Board is management, as well as the assessment of financial, fixed by the General Meeting on the proposal of the technological, social, and political risks. Every year Meeting of Holders of Priority Shares. At each Annual operational and service unit managers are required to General Meeting one fourth of the members of the state how they have fulfilled their responsibilities in a Supervisory Board shall step down, including any Letter of Representation. member who has reached the age of 70 since the previous Annual General Meeting was held.
The Supervisory Board may unanimously decide to delegate certain tasks to one or more of its members. In this context, the Supervisory Board has established a Nomination and Remuneration Committee to prepare proposals for nominations and remuneration and an Audit Committee to review the Company’s financial affairs.
Profile of the Supervisory Board The composition of the Supervisory Board should be such that the members can fulfill their tasks independently of one another and of the Board of Management. Membership of the Supervisory Board should reflect both the variety of the Company’s businesses and its international character and provide expertise in such areas as finance and societal relations. To ensure continuity, the Supervisory Board should include one or, in special circumstances, two former members of the Board of Management.
AKZO NOBEL ANNUAL REPORT 1999 7 REPORT OF THE SUPERVISORY BOARD
Changes in the Supervisory Board the merger with Nobel Industries, the acquisition of At the General Meeting of Shareholders of April 22, Courtaulds, and more recently the divestment of 1999, membership of the Supervisory Board was Acordis. We are grateful to Mr. Wendelstadt for his wise increased by one and fixed at ten. Lars H. Thunell was counsel and significant contributions. appointed to the Supervisory Board effective May 1, 1999. Mr. Thunell has extensive experience in the Changes in the Board of Management financial world and has held a number of top financial At the General Meeting of Shareholders of April 22, management positions in the United States, 1999, membership of the Board of Management was Switzerland, and Sweden. At the same meeting reduced by one and fixed at five, after Folkert B. Blaisse L. Paul Bremer III, Jean G.A. Gandois, and Maarten had resigned at December 31, 1998, to become C. van Veen, who resigned from the Supervisory Board Acordis’ Chief Executive Officer. as their terms of office were expiring, were reappointed. With effect from July 1, 2000, Ove H. Mattsson, member of the Board of Management responsible for At the General Meeting of April 26, 2000, it will be Coatings, will retire. Mr. Mattsson, who was President proposed that Virginia Bottomley be appointed to the and CEO of Nobel Industrier AB, joined the Board in Supervisory Board, effective May 1, 2000. The Rt. Hon. 1994, following the merger of Akzo and Nobel, in which Virginia Bottomley JP MP, former Secretary of State for he played a major role. Since then, Akzo Nobel’s Health and Member of the British Cabinet, is currently Coatings operations have continuously grown from a Vice Chairman of the British Council and a Governor of significant market position in the European region to the London School of Economics. global leadership, following the acquisition of Courtaulds in 1998. We are greatly indebted to Aarnout A. Loudon and Hilmar Kopper, who will step Mr. Mattsson for his many outstanding services to the down at the same meeting as their terms of office are Company. expiring, are recommended for reappointment. With effect from the same date, Rudy M.J. van der Dieter Wendelstadt, who has served on the Supervisory Meer, currently member of the Board of Management Board for seven years, will step down, having reached responsible for Chemicals, will take over Mr. Mattsson’s the retirement age. In addition to serving on the responsibility for Coatings. Nomination and Remuneration Committee, he has rendered invaluable advice during a period spanning
8 At the General Meeting of April 26, 2000, it will be The Audit Committee held consultations with the proposed that Dag Strömqvist, currently general Chairman of the Board of Management, the Chief manager of the Pulp & Paper Chemicals business unit, Financial Officer, and the external and internal auditors be appointed to the Board of Management to succeed on such issues as accounting principles, internal Mr. van der Meer as board member responsible for control, administrative organization, the millennium Chemicals. issue, and the effects of the introduction of the euro. In January 2000, preparations for the 1999 financial Supervision statements were extensively discussed with the Board During the year the Supervisory Board was regularly of Management, the external auditors, and the internal informed through business reports, rolling forecasts, auditors. Minutes of the Audit Committee meetings are strategic and operational plans, and presentations by discussed by the full Board. the Board of Management. The Supervisory Board periodically consulted with the Board of Management Financial Statements and Dividend Proposal on strategy, financial planning, human resources, We herewith submit for shareholders’ approval at the acquisitions and divestments, and major investment General Meeting of April 26, 2000, the financial projects. The Supervisory Board also met without the statements of Akzo Nobel N.V. for 1999 as prepared by Board of Management being present to discuss issues the Board of Management. These financial statements including the functioning and composition of the have been audited by KPMG Accountants N.V. Their Supervisory Board and of the Board of Management. report can be found on page 84.
In 1999 the Supervisory Board engaged in in-depth We have approved these financial statements as well as discussions on such issues as: the Board of Management’s proposal made therein with • the Company’s overall strategy, economic and market regard to the allocation of profit, and the dividend developments, and potential risks; proposal, as stated on page 17. We recommend that • major initiatives in the context of the overall strategy, shareholders adopt the financial statements and particularly the divestment of Acordis and its financial discharge the members of the Board of Management of consequences, and the acquisition of HR Vet; their responsibility for the conduct of the business, and • improvement of the Company’s financial structure the members of the Supervisory Board for their through cash flow from normal operations, internal supervision. measures, and divestments; • Corporate Governance. Arnhem, February 24, 2000
Furthermore, the Supervisory Board discussed and The Supervisory Board authorized several other acquisitions, as well as a number of major investment projects.
The Nomination and Remuneration Committee prepared the proposals for the nomination of Mrs. Bottomley to the Supervisory Board and for reappointment of Mr. Loudon and Mr. Kopper. The Committee had consultations with the Board of Management on the latter’s proposal to nominate Mr. Strömqvist for appointment to the Board of Management and advised the Supervisory Board to approve this nomination. Furthermore, the Committee reviewed the total remuneration, including the granting of options and other benefits, of the members of the Board of Management.
AKZO NOBEL ANNUAL REPORT 1999 9 Supervisory Board
Has served in this or similar capacity since:
Aarnout A. Loudon 1994 Former Chairman of the Board of Management of Akzo Nobel (1936, Dutch), Chairman of the Supervisory Board of ABN AMRO and Hollandsche Beton Groep, Chairman 1) the Netherlands Member of the Supervisory Board of Royal Dutch Petroleum Company Nonexecutive Director of Corus Group
Frits H. Fentener van Vlissingen 1984 Managing Director of Flint Holding, the Netherlands (1933, Dutch), Advisory Director of Unilever Deputy Chairman 1) 2) Deputy Chairman of the Supervisory Boards of ABN AMRO and SHV Holdings, the Netherlands Chairman of the Supervisory Boards of CSM and Draka, the Netherlands Member of the Supervisory Board of Diamond Tool Group, the Netherlands
L. Paul Bremer, III 1997 Former U.S. Ambassador to the Netherlands (1941, American) Managing Director of Kissinger Associates Nonexecutive Director of Air Products & Chemicals, Pennsylvania, and Vivid Technologies, Massachusetts Chairman of the U.S. National Commission on Terrorism
Abraham E. Cohen 1992 Former Senior Vice President of Merck & Co and President of Merck International, (1936, American) 2) New Jersey Chairman of Vascomedical, New York, and Neurobiological Technologies, California Nonexecutive Director of Smith Barney (Mutual Funds), New York, Teva Pharmaceutical Ind., Israel, and Pharmaceutical Product Development, North Carolina Trustee of the Population Council, New York
Jean G.A. Gandois 1989 Former President of the Conseil National du Patronat Français (1930, French) Former CEO of Rhône-Poulenc and Pechiney Former Chairman of Cockerill Sambre, Belgium Member of the Supervisory Boards of Siemens and Peugeot Member of the Supervisory Board of Suez Lyonnaise des Eaux, France
10 Has served in this or similar capacity since:
Hilmar Kopper 1990 Chairman of the Supervisory Boards of Deutsche Bank and DaimlerChrysler (1935, German) 2) Member of the Supervisory Boards of Bayer and Solvay Advisory Director of Unilever Nonexecutive Director of XEROX
Lars H. Thunell 1999 President and CEO of S E B Skandinaviska Enskilda Banken (1948, Swedish) 2) Chairman of the Swedish Bankers Association
Maarten C. van Veen 1997 Former CEO of Koninklijke Hoogovens, the Netherlands (1935, Dutch) Chairman of the Supervisory Board of Koninklijke Volker Wessels Stevin, the Netherlands Member of the Supervisory Board of ABN AMRO Member of the Supervisory Boards of Internatio-Müller and Van Doorne’s Transmissie, the Netherlands Nonexecutive Director of Corus Group
Lo C. van Wachem 1992 Former President, now Chairman of the Supervisory Board of Royal Dutch /Shell (1931, Dutch) 1) Chairman of the Supervisory Board of Royal Philips Electronics Member of the Supervisory Board of BMW and Bayer Nonexecutive Director of IBM Nonexecutive Director of Atco, Canada, and Zurich Financial Services, Switzerland/UK
Dieter Wendelstadt 1993 Former Chairman of the Supervisory Board of AXA Colonia Konzern (1929, German) 1) Member of the Supervisory Boards of Ford Germany, Morgan Stanley Germany, and Kölnische Rückversicherung, Germany Chairman of the Supervisory Board of DSL-Bank, Germany
1) Member of the Nomination and Remuneration Committee. 2) Member of the Audit Committee.
AKZO NOBEL ANNUAL REPORT 1999 11 GENERAL
MILESTONES IN 1999
January Launch of Acordis as a stand-alone company Acquisition of Dexter’s 40 percent participation in Akzo Dexter (AD) Aerospace Finishes; now wholly owned Marketing approval in Germany for Organon’s Livial®, the first tissue-specific treatment for menopausal symptoms Polymer Chemicals becoming worldwide distributor of the specialty additive products CIRS SpA Divestment of the former Courtaulds European plastic tubes business
February Acquisition by Organon of the ethical pharmaceutical business of Japan-based Kanebo
March Establishment of joint venture between Akzo Nobel and Nippon Paint Company, creating European market leader in coil coatings
April Divestment of former Courtaulds performance film A farewell to Acordis. business Cees van Lede and Folkert Blaisse shake hands in Acquisition by Intervet of majority shareholdings in front of the “Cocoon,” which from 1928 to 1989 Farmaceutici Gellini and Nuova ICC adorned the entrance tower of the rayon (artificial silk) plant in Arnhem. Presented to May License agreement with Roche Diagnostics under Acordis on this occasion, it will be moved to their Organon Teknika’s nucleic acid extraction technology site in the course of 2000. June Inauguration of the Delesto joint venture’s 360 MW cogeneration plant in Delfzijl, the Netherlands Divestment of Polymer Chemicals’ Dianol business
July Establishment of joint venture between Polymer Chemicals and Taiwan-based Coin for their dicumyl peroxides (DCP) and cumene hydroperoxides (CHP) businesses Acquisition of Korean paper chemicals business by Pulp & Paper Chemicals Divestment of Akzo Nobel Information Services Offer for Acordis from CVC Capital Partners Divestment of former Courtaulds Aerospace Coatings and Sealants business
August Major earthquake in Turkey; two fatalities among employees
October Organon Inc. launches new muscle relaxant Raplon® in the United States
November Acquisition of Hoechst Roussel Vet
December Decision to build a 25,000 tons-per-annum monochloroacetic acid (MCA) plant in China Sale of Akzo Nobel’s stake in ROVIN Divestment of Acordis completed
12 REPORT OF THE BOARD OF MANAGEMENT
GENERAL
STRATEGY FINANCIAL PERFORMANCE
In 1999 we continued to pursue our strategy to defend Highlights 1999 or conquer leadership positions with structural profitability in selective world markets in the areas of • Slow start in first quarter, healthy increase in net healthcare, coatings, and chemicals. Our activities income* in fourth quarter should have the critical mass needed to play an active • Sales up 16 percent: 4 percent higher volumes; role in the industries in which we operate. We give 11 percent acquisitions /divestments priority to growth of our Pharma and Coatings • Pharma key growth driver: sales up 23 percent, operations and strive to improve Chemicals’ returns and 13 percent volume growth portfolio composition. In line with our strategy Acordis • Average selling prices slightly lower was divested, and several corporate services were • Operating income before nonrecurring items 10 percent outsourced. higher; excluding Acordis up 21 percent • Return on sales 9.5 percent against 10.0 percent in 1998; We aim to reinforce our internal coherence by optimally excluding Acordis 11.7 percent against 11.2 percent exploiting the synergy among our businesses and by committing to a more stable and higher growth profile. In this context we will also align the interests of our Fritz W. Fröhlich, employees even more strongly with those of our Deputy Chairman shareholders. and CFO, updates the media at a Specific strategy issues and financial targets are press conference. discussed in the Business Reviews of Pharma, Coatings, and Chemicals.
Akzo Nobel’s key products, competitive positions, as well as Pharma’s products in the pipeline are stated on pages 24 and 25.
Principal strategic transactions: Acordis divested, Intervet in top league • Higher financing charges due to financing of acquisitions, mainly Courtaulds by mid-1998; gradual In November 1999, Akzo Nobel signed a contract to reduction in second half of 1999, reflecting strong cash sell its Acordis fibers business to a consortium led by flow and divestment program CVC Capital Partners. CVC now holds 64 percent in the • Interest coverage 5.0 new company’s equity, Acordis’ management • Net income* up 8 percent from EUR 703 million to 15 percent, and Akzo Nobel 21 percent. EUR 759 million, despite negative Acordis results • Bottom-line net income EUR 204 million due to Also in November, we bought HR Vet, the veterinary extraordinary and nonrecurring charges of EUR 555 business of Hoechst AG. This transaction moved million, primarily related to the Acordis divestment Intervet into the top league, with combined sales of • Expenditures for PP&E EUR 797 million, close to both operations totaling approximately EUR 0.8 billion. depreciation of EUR 740 million; for Pharma more than 60 percent over depreciation • Financial surplus EUR 608 million; EUR 294 million from normal operations after dividend and EUR 314 million net cash effect of divestments and acquisitions • R&D expenditures EUR 726 million; Pharma EUR 400 million, up 19 percent * Excluding extraordinary and nonrecurring items.
AKZO NOBEL ANNUAL REPORT 1999 13 Pharma – earnings up 24 percent These developments are reflected in the ROS percentages (before nonrecurring items): Pharma had a very good year with significant volume growth across the board. Operating income before 1999 1998 nonrecurring items surged 24 percent to EUR 595 million, despite continued heavy spending in marketing Pharma 20.8 20.7 and R&D to maintain growth momentum. In human Coatings 8.5 8.4 healthcare, Organon and Organon Teknika turned in an Chemicals 9.6 9.4 excellent performance, with all key products Total of continuing operations 11.7 11.2 contributing to substantial sales and earnings gains. In animal healthcare, Intervet sustained its high profitability level with continued growth in sales and Acordis cyclically impacted income. Hoechst Roussel Vet contributed to the results from November. Diosynth’s earnings remained strong Operating income before nonrecurring items fell from and exceeded the previous year’s level. EUR 64 million in 1998 to a loss of EUR 62 million in 1999, due to the severe cyclical downturn for textile Coatings – earnings up 16 percent fibers. This particularly goes for Enka® viscose filament and standard clothing applications. Tencel® achieved Coatings’ 1999 operating income before nonrecurring strong earnings growth. The industrial fibers activities items amounting to EUR 466 million was 16 percent held up better. higher than in 1998. Benefits from the acquisitions made in 1998 are becoming increasingly manifest. Net income up 8 percent Decorative Coatings registered income gains in most Western European countries and Turkey, bolstered by Net income excluding extraordinary and nonrecurring higher volumes and cost control. Car Refinishes turned items increased 8 percent, in spite of the significant in a record performance, particularly in Europe and the negative impact of textile fibers. Pharma, Coatings, and United States. During the first months of the year, the Chemicals achieved major growth in earnings. industrial activities as well as Marine & Protective Coatings were hampered by soft market conditions. Sales of continuing operations were EUR 12.2 billion, Gradually business picked up again, aided by the strong up 16 percent from the previous year. Higher volumes, North American economy and an improving business notably at Pharma but also at Coatings and Chemicals, climate in Europe and Asia. accounted for a 5 percent rise in sales, while average selling prices were 1 percent lower. The net contribution Chemicals – earnings up 15 percent of acquisitions and divestments was 10 percent, with Courtaulds included in the annual figures for the full Chemicals turned in a distinctly improved performance. year and in 1998 only for the second half of the year. Operating income before nonrecurring items of Currency translations had a 2 percent positive effect, EUR 367 million exceeded the 1998 figure by 15 percent, predominantly related to the U.S. dollar, the pound reflecting higher demand and cost reductions. sterling, and the Swedish krona. Polymer Chemicals continued its solid performance. Catalysts’ results were significantly up from the Operating income of continuing operations, before disappointing 1998 level, aided by market nonrecurring items, demonstrated a healthy 21 percent improvement and cost-saving measures. growth to EUR 1,426 million, with a major contribution At Surface Chemistry earnings improved significantly, being made by Pharma. Coatings, partly due to benefiting from recent restructurings. Pulp & Paper acquisitions, and Chemicals also made substantial Chemicals suffered from the depressed North American contributions. market for bleaching chemicals, while Functional Chemicals was not able to sustain the upward trend of The increase in financing charges from EUR 207 million recent years. in 1998 to EUR 275 million in 1999 is primarily due to interest on debt assumed in the context of acquisitions, notably Courtaulds in mid-1998. Interest coverage was 5.0.
Income taxes decreased from 35 percent in 1998* to 33 percent in 1999 due to changes in the geographic mix of earnings.
14 Earnings from nonconsolidated companies (before Condensed statement of income nonrecurring charges) totaled EUR 52 million, compared with EUR 45 million in 1998. This increase is Millions of euros 1999 1998* largely attributable to better results of the Acordis nonconsolidated companies. Flexsys continued to make Net sales: a satisfactory contribution. Continuing operations 12,190 10,535 Acordis 2,242 1,947 Restructuring for the future 14,432 12,482
In 1999 the Company recognized extraordinary losses Operating income for a total after-tax amount of EUR 515 million, relating before nonrecurring items: to Acordis, and nonrecurring losses of EUR 40 million Pharma 595 480 after taxes, relating to other activities, reducing Coatings 466 401 bottom-line net income to EUR 204 million. Chemicals 367 320 Other (2) (23) The launch of Acordis as stand-alone company required Continuing operations 1,426 1,178 various separation and restructuring measures. The Acordis (62) 64 dramatic downturn of the textile fiber cycle during 1,364 1,242 1999 necessitated additional restructuring measures, especially at Enka® viscose filament. The total effect of Financing charges (275) (207) these separation and restructuring measures was an extraordinary loss of EUR 275 million before taxes. Operating income before At the end of December 1999, Acordis was divested to nonrecurring items, a newly established Dutch holding company. less financing charges 1,089 1,035 CVC Capital Partners holds a 64-percent stake in the equity of this company, while Acordis management Ta xe s (357) (361) holds 15 percent, and Akzo Nobel the remaining 21 percent, valued at EUR 49 million. Akzo Nobel Earnings of consolidated furthermore extended a subordinated loan to Acordis of companies after taxes 732 674 EUR 138 million. The transaction value of the Earnings from divestment was determined at EUR 825 million based nonconsolidated companies 52 45 on the debt-free December 31, 1998 balance sheet and an assumed capital expenditure level for 1999. Earnings before minority interest 784 719 The substantial reduction of working capital and capital Minority interest (25) (16) expenditures during 1999 resulted in a value of approximately EUR 640 million. The net asset value of Net income excluding extraordinary Acordis at December 31, 1999, after an additional fair and nonrecurring items 759 703 value adjustment, was EUR 1,105 million. As a Extraordinary and consequence, the divestment resulted in a pretax book nonrecurring items, after taxes (555) (129) loss of EUR 465 million. The extraordinary pretax losses on the separation and restructuring of EUR 275 Net income 204 574 million and on the divestment of EUR 465 million aggregated EUR 740 million. Taking into account tax Net income per share, credits of EUR 225 million, the after-tax loss amounted excluding extraordinary to EUR 515 million. and nonrecurring items (in EUR) 2.66 2.46
The after-tax nonrecurring losses of EUR 40 million mainly relate to restructurings of Pharma’s Diagnostics activities and the divestment of our participation in ROVIN to Shin-Etsu at the end of December 1999.
* Restated for change in accounting principles. Reference is made to Change in Accounting Principles on page 64.
AKZO NOBEL ANNUAL REPORT 1999 15 Strong operational cash flow – funds balance of EUR 608 million
Millions of euros 1999 1998*
Earnings before minority interest 229 590 Depreciation and amortization 776 683 Cash flow 1,005 1,273
Book loss on divestments, writedowns, and changes in provisions 286 193 Changes in working capital 140 (249) Other items 4 71 Net cash provided by operations 1,435 1,288
Expenditures for: – property, plant and equipment (797) (819) – acquisitions (725) (2,975) – other noncurrent assets (40) (35) Proceeds from sale of interests 1,039 287 Net cash used for investing activities (523) (3,542) 912 (2,254) Dividend payment (304) (296)
Funds balance 608 (2,550)
The cash flow from operations increased from In 1999, as in the previous year, normal operations EUR 1,288 million in 1998 to EUR 1,435 million in were financed without additional capital market 1999. Working capital was reduced by EUR 140 million transactions. We continued to use the money market, (1998: increase of EUR 249 million). including the U.S. commercial paper market, to bridge peak financing requirements for working capital. Expenditures for property, plant and equipment were EUR 797 million in 1999 against EUR 819 million in the Improved portfolio – lower debt previous year. Expenditures at Acordis and Coatings were lower, partly offset by increases for Pharma and Invested capital of EUR 7.8 billion at year-end 1999 Chemicals. Depreciation amounted to EUR 740 million, compares with EUR 8.5 billion at the end of 1998. compared with EUR 661 million in 1998. Divestments caused a EUR 1.7 billion decrease, while acquisitions added EUR 0.5 billion. Higher exchange Authorizations for new projects were lower for all rates led to an increase of EUR 0.7 billion. Expenditures Groups, totaling EUR 630 million, against EUR 860 for property, plant and equipment were close to million in 1998. depreciation, while lower working capital accounted for a decrease of EUR 0.2 billion. Acquisition expenditures of EUR 725 million mainly concerned HR Vet and the pharmaceutical business of The invested capital turnover ratio of continuing Kanebo. operations in 1999 was 1.71, against 1.69 in the previous year. Proceeds from sale of interests predominantly relate to the divestments of PRC-DeSoto, Acordis, Performance Equity decreased by EUR 0.1 billion, while net interest- Films, and ROVIN. bearing debt was EUR 0.3 billion lower. As a consequence, gearing slightly improved to 2.26 (1998: 2.30).
* Restated for change in accounting principles. Reference is made to Change in Accounting Principles on page 64.
16 Condensed balance sheet DIVIDEND PROPOSAL
Millions of euros, December 31 1999 1998* At the General Meeting of Shareholders of April 26, 2000, we will propose a 1999 dividend of EUR 1.00 per Noncurrent assets 5,377 5,924 common share (1998: EUR 0.98). In November 1999 we Working capital 2,378 2,600 declared and paid an interim dividend of EUR 0.30. Our Invested capital of proposal would result in a dividend payment of consolidated companies 7,755 8,524 EUR 286 million, a payout ratio of 38 percent relative to net income excluding extraordinary and nonrecurring Nonconsolidated companies 644 466 items. Cash and cash equivalents 932 536 9,331 9,526 Pages 18 through 62 form an integral part of the Report of the Board of Management. Equity 2,015 2,089 Provisions 1,835 2,102 Interest-bearing debt 5,481 5,335 OUTLOOK FOR 2000 9,331 9,526 The macroeconomic outlook for Europe is positive for the year ahead, and no fundamental weakening of the The decrease in equity reflects the balance of additions U.S. economy is foreseen. Asia and Latin America through net income (EUR 0.2 billion) and positive continue to show a recovery to growth rates typical of currency translation effects (EUR 0.2 billion) on the one emerging markets. In light of this scenario and hand, and reductions due to dividends (EUR 0.3 billion) assuming that no major currency disturbances occur, and goodwill (EUR 0.2 billion) on the other. we should be able to achieve a double-digit growth for The goodwill charge predominantly concerned goodwill our net income excluding extraordinary and on the acquisition of HR Vet and the pharmaceutical nonrecurring items. business of Kanebo, partially offset by an, on balance, positive purchase accounting adjustment for Expenditures for property, plant and equipment are Courtaulds. The latter included the gains on the planned at approximately EUR 750 million. Our strong divestment of PRC-DeSoto and Performance Films, cash flow should enable us to reduce the present partially offset by the writedown of certain Acordis gearing. activities of EUR 300 million and additional restructuring provisions in the context of integration at Excluding acquisitions and divestments, we do not Coatings. foresee any material changes in the number of employees in 2000. Headcount down 17,900 to 68,000 Arnhem, February 24, 2000 Restructurings at and the divestment of Acordis caused a decrease of 18,700. Other divestments led to a The Board of Management workforce reduction of 3,000. Acquisitions, mainly HR Vet, resulted in an increase of 3,600. Because of organic growth at Pharma, notably in Sales, Marketing and R&D, the number of employees rose 1,400, while decreases were registered for Coatings, Chemicals, and Central Units.
* Restated for change in accounting principles. Reference is made to Change in Accounting Principles on page 64.
AKZO NOBEL ANNUAL REPORT 1999 17 PEOPLE AT AKZO NOBEL During the year, 600 managers from 20 countries participated in a total of 30 international educational Our most important resource programs. Functional and cultural diversity are key words for these programs, so we would like to improve Our Company Statement emphasizes that people are the cultural spread of the participants to reflect the our most important resource. Though some may regard geographic spread of our management and operations. this as just another cliché, few would deny that we are living in a fast-changing world where money, Great diversity information, resources, and ideas can be moved around the globe at the touch of a button, where competition is Akzo Nobel is a company employing at year-end 1999 increasing at a greater pace than market potential, and 68,000 people all over the world; 64 percent in Europe where events are unfolding at an ever increasing rate (19 percent in the Netherlands), 15 percent in North and are becoming far more difficult to predict. In such a America, 7 percent in Latin America, 11 percent in Asia world, it is the competence, loyalty, cultural diversity, Pacific, and 3 percent in other regions. A similar and enthusiasm of our employees that will ensure our analysis of our higher management levels shows that long-term competitive edge. To address this challenge the great majority of these positions are manned by we must be prepared to question adopted truths of Europeans, which underlines the need to further human resource management. improve the international diversity of our management. The more successful we are in harnessing the creative Open to feedback skills of our employees in this multicultural environment, the more we improve our long-term People feel most at home in an organization in which competitiveness. they can make themselves heard. A fine example of our efforts to create such an organization is the employee survey conducted by the Chemicals business units to RESEARCH AND DEVELOPMENT gauge employee satisfaction and obtain honest feedback on such issues as management, supervision, In 1999, R&D expenditures amounted to EUR 726 and safety. The results are being analyzed at our million, up 12 percent from 1998. The main driver locations and will form the basis of local improvement continued to be Pharma, which now accounts for programs. 55 percent of Akzo Nobel’s total R&D expenditures. For Pharma as a whole, R&D expenses as a percentage To assess our attractiveness as an employer, a survey of sales were maintained at a level of 14 percent. For was conducted among a group of recent graduates. The Coatings and Chemicals this ratio remained results revealed weaknesses in our handling of career approximately 3 percent. guidance and other management development issues. These signals were taken to heart and resulted in a Total R&D staff was 6,800 at year-end 1999, against number of improvements, such as a stronger focus on 7,500 at the end of 1998. The decrease mainly relates individual career guidance, annual appraisals, and to the divestment of Acordis. improved education and training support, which will be implemented in early 2000. ENGINEERING Education and training Toward the end of 1999 the Board of Management This year Corporate Education & Training offered decided to refocus and revitalize Akzo Nobel middle and higher management 12 tailor-made Engineering (AE). In order to ensure its long-term programs, varying from three days to three weeks. competitiveness and expertise critical mass, AE needs Quality is ensured through our educational to generate over time at least 30 percent of its sales partnerships with a select group of distinguished from external customers. The choice to operate as a business education institutes. commercial unit in the marketplace calls for a substantial adjustment of the cost structure and operational flexibility as well as a major capacity reduction. The necessary actions have been defined and will for a significant part be executed in 2000.
18 HEALTH, SAFETY, AND ENVIRONMENT (HSE) Safety Record 1999
Concern for health, safety, and environment is an F.R.* 1999 1998 integral part of our business policy. Akzo Nobel actively supports the guiding principles of the Business Charter Pharma 0.65 0.78 for Sustainable Development of the International Coatings 0.86 1.23 Chamber of Commerce, the Responsible Care® program Chemicals 0.58 0.48 of the chemical industry, and the Coatings Care® program of the paint and printing ink industry. Akzo Nobel, excluding Acordis 0.73 0.87
“What gets measured gets done” Our overall safety performance improved 15 percent compared to 1998, with the major contribution coming We have found this statement to be true for all aspects from Coatings. Fortunately, in 1999 no fatalities of our business, and the area of health, safety, and occurred. environment is no exception.
Targets for the year 2000 (baseline = 1994) AKZO NOBEL IN SOCIETY (excluding Courtaulds) In August a devastating earthquake hit Turkey. One of Year 1994 1998 Target the towns worst hit was Gebze, situated some 20 kilometers from the epicenter and home to our coatings Safety (F.R.)* 1.55 0.80 <1 factory Marshall Boya. Two of our employees lost their Heavy metals to water (tons) 66 32 60 lives and many lost their homes and possessions. Organic compounds Akzo Nobel and employees made funds available for to air (tons) 22,448 18,638 19,000 immediate relief and the construction of new homes. Total waste (tons) 300,548 244,679 255,000 Akzo Nobel regards the support of select activities in Six years ago, we set ourselves Company-wide targets such fields as education, sports, arts, culture, and to be achieved by the year 2000. In 1998, for the first science as a cornerstone of its role as a good corporate time, all of these targets were met. Nevertheless, we do citizen. Our community relations program outlines the not see this as a reason to rest on our laurels; on the criteria for sponsoring and donations, aimed at contrary, in our view the Company’s performance is still stimulating young talent. The corporate projects we are not good enough. In line with Akzo Nobel’s HSE policy involved in are mainly international in character, while statement, we must continuously improve and we will local units have adopted projects that are close to the continue to make progress toward our vision of no people. We prefer a proactive approach, developing accidents, injuries, or harm to the environment. projects in cooperation with a partner.
Based on a strong emphasis on Product Stewardship, The Education Fund (a cooperation with Plan we will design or modify our products to minimize their International) financed a number of educational environmental, health and safety impact over the projects in developing countries. In Vietnam, in the complete life cycle, from the choice of raw materials, province of Bac Giang, class rooms were constructed through manufacturing, distribution, use and disposal, and school equipment was provided for elementary in close cooperation with distributors, customers, and schools. In Kupang, Indonesia, the Education Fund suppliers. contributed to improving access to schools by renovating and repairing schools and building study This year, we will be setting new targets, to be achieved centers. In Pu Cheng County, China, 52 elementary by the year 2005, based on the changed composition of schools received school equipment and in Chun Hua the Company. County school equipment was provided, while old desks and benches were repaired and sent to other schools. Altogether some 7,000 elementary school children benefited from these projects. Education Fund projects are financed with donations coming from Akzo Nobel employees and the Company.
* F.R. (frequency rate) = number of Lost Time Injuries per 100 employees per year.
AKZO NOBEL ANNUAL REPORT 1999 19 Cees van Lede visits Turkey to meet victims of the earthquake and their families.
The Education-Industry Partnership program to This past year, the Akzo Nobel Art Foundation bought encourage young children to show a greater interest in some hundred new creations of international science and technology was extended to the Courtauld contemporary artists for the Akzo Nobel Collection. Institute of Art in London, which focuses on programs Part of the collection can be viewed on the Internet. for schools to promote the use of graphics and colors. Akzo Nobel has loaned some of its best works to Practical workshops for secondary schools were set up various museums, including London’s Tate Gallery and in the Courtauld Gallery Education Programme with the Centre Pompidou in Paris. The Foundation also Akzo Nobel’s support. assists the business units in selecting art and artists and, in consultation with the City of Arnhem, Marcus Aldén and Sune Svanberg, professors at the formulated the commission for a sculpture in Lund Institute of Technology, who worked in an commemoration of the Sonsbeek Park centennial. Akzo interdisciplinary project on the uses of laser light, have Nobel presented the resulting work of art by Hans been awarded the Akzo Nobel Science Award Sweden. Hovy, entitled “Celestial Gift,” to the City of Arnhem. They cooperated with chemists, environmental The sculpture, pictured on page 28, now stands in scientists, oncologists, and pathologists to improve Sonsbeek’s Steep Garden. laser spectroscopy and find new technical and medical applications. The Swedish award was presented for the first time; from now on the Award will be given alternately in the Netherlands (in 2000 for the 30th time) and Sweden.
Since the set-up of the Akzo Nobel for Young Talent program in 1994, 17 concerts have been supported throughout the world. In 1999, four young soloists performed with renowned orchestras and conductors in Birmingham, Chicago, and Amsterdam.
20 Akzo Nobel share price index Bloomberg Europe Pharmaceutical Index Bloomberg Europe Chemical Index
December 31, 1998 = 100
1999 Pro-active investor relations approach
150 Akzo Nobel presented its operations to the financial world 140 at a number of conferences and roadshows in major finan- cial centers in the United States and Europe. Members of
130 the Board of Management and business unit managers gave presentations to the financial world on developments
120 in their businesses, and positive feedback was received in analysts meetings. We also held press conferences and conference calls with the investor community in the 110 context of the publication of our quarterly results.
100 The Internet is rapidly developing into a key investor relations communications tool. Akzo Nobel’s website 90 includes data such as quarterly results, conference calls, and information given in presentations. 80 Broadened stock option plan
70 To further align the interests of management and share- holders, the number of executives participating in Akzo AKZO NOBEL SHAREHOLDERS Nobel’s stock option plan was increased from 100 to 800. Stock option rights are valid for five years. Starting from Value-driven management January 1999, rights can only be exercised after a three- year period. In 1999 we again made significant progress in the pursuit of our strategic objective to move away from Share price outperforming index cyclical, low-yield, low-growth operations to value- creating, high-growth businesses. The successful In 1999, Akzo Nobel’s share price rose by 28 percent and integration of the former Courtaulds activities made was generally in line with the Bloomberg Europe Chemical Akzo Nobel the true world leader in coatings. In 1999 and Europe Pharmaceutical Indexes, with a positive we completed the divestment of Acordis, doubled the deviation by the end of the year. Over the last three years animal health business with the acquisition of HR Vet, our share price has shown an average annual growth of and gained a stronger foothold for our prescription 23 percent. drugs in Japan with the acquisition of the pharmaceutical activities of Kanebo. The 1999 dividend of EUR 286 million represents 38 percent of net income excluding extraordinary and Our ambition in the year 2000 is to make a further shift nonrecurring items, which is in line with our policy to to value creation as the driving force for our businesses. maintain a payout ratio between 35 and 40 percent. Our operational and strategic decisions, including acquisitions and divestments, will be governed by the During the year many detailed research reports were value generated by the operations in excess of the published on our Company. The recommendations were average cost of capital, which is at present almost evenly divided between “buy” and “hold,” with a approximately 9 percent (after taxes). Performance clear shift to “buy” toward the end of the year. measurement using the EVA (Economic Value Added) tool, which will be embedded in the bonus system, will Shareholdings enhance value-based control. An EVA pilot is currently being implemented in three business units and at the At year-end 1999 approximately 29 percent of corporate level; a complete rollout is planned. Akzo Nobel’s shares was held in the Netherlands, 26 percent in the United States, 22 percent in the United Kingdom, and 23 percent in other countries. About 14 percent of the total number of shares was owned by private investors and 86 percent by institutional investors.
AKZO NOBEL ANNUAL REPORT 1999 21 Akzo Nobel’s common shares are listed at the following stock exchanges: Amsterdam, London, NASDAQ (as American Depositary Receipts), Vienna, Brussels, Paris, Frankfurt am Main, Stockholm (as Swedish Depositary Receipts), and the SWISS EXCHANGE.
In order to comply with the regulations of the U.S. Securities and Exchange Commission, the Company files an Annual Report on Form 20-F, which after filing will be available at the Company’s office and on the Internet.
For the financial calendar and contacts with Investor Relations, reference is made to page 91.
Five-year summary
Amounts in euros per share* 1999 1998 1997 1996 1995
Net income 0.71 2.01 2.46 1.97 1.87
Net income excluding extraordinary and nonrecurring items 2.66 2.46 2.46 1.97 1.93
Dividend 1.00 0.98 0.97 0.85 0.79 Shareholders’ equity 6.51 6.66 14.63 12.49 10.73
Share price Highest 52.40 58.86 42.84 26.99 23.79 Lowest 30.00 25.87 26.29 19.97 18.60 Year-end 49.80 38.80 39.66 26.77 21.06
Dividend in % of net income excluding extraordinary and nonrecurring items 38 40 39 43 41
Number of common shares* outstanding at year-end (in millions) 285.9 285.3 285.2 284.7 284.3
* All (per) share data have been adjusted to reflect the four-for-one stock split on July 1, 1998, and the change in accounting principles for deferred taxes; see page 64.
22 Net sales Number of employees
of continuing operations at December 31, 1999 [68,000]
[EUR 12.2 billion]
Pharma 24% Pharma 21,100
Coatings 45% 30,900 Coatings
Other 1,500
Chemicals 31% Chemicals 14,500
BUSINESS ACTIVITIES
AKZO NOBEL’S PRODUCTS AND MARKETS
KEY FIGURES AND RATIOS
PHARMA
COATINGS
CHEMICALS
AKZO NOBEL ANNUAL REPORT 1999 23 AKZO NOBEL’S PRODUCTS AND MARKETS (All stated competitive positions are based on management estimates.)
MAJOR PRODUCT LINES KEY PRODUCTS/APPLICATIONS COMPETITIVE POSITION
PHARMA
Prescription drugs, hospital • Contraceptives, infertility treatment, • Among top four suppliers of oral supplies, veterinary products, hormone replacement therapy, and CNS contraceptives, second largest in infertility raw materials for the products (antidepressants, antipsychotics) products; building up positions in pharmaceutical industry, CNS products OTC products • Muscle relaxants and diagnostics • World leader in muscle relaxants, strong in bacteriology 1999 sales EUR 2.9 billion • Veterinary vaccines and pharmaceuticals • One of the four major suppliers of veterinary products
• Pharmaceutical raw materials • Strong in heparins and a world leading supplier of steroids and industrial peptides
• Nonprescription drugs • Strong local positions in Europe
Products in the pipeline Indication (Expected) first launch 1999 2000 2001 2002 >2002 Ethicals Cerazette® contraception Implanon® contraception Nuvaring® contraception New oral contraceptive contraception Orgalutran® (Antagon™ in U.S.) infertility Xyvion™ osteoporosis U.S. Org 5222 psychosis Gepirone depression U.S. Org 12962 depression Org 31540 atherothrombosis Raplon® muscle relaxant
Veterinary products several new products in various stages
Diagnostics several new products in various stages
COATINGS The world’s leading coatings producer
Coatings and related products, • Coatings for decoration and protection of • Market leader in Europe adhesives, printing inks, architectural structures and resins • Car refinishes, finishes for commercial • Among top four global suppliers vehicles 1999 sales EUR 5.5 billion • Coatings for protection and decoration of • World leader hulls, interiors, and superstructures for ships and yachts
24 MAJOR PRODUCT LINES KEY PRODUCTS/APPLICATIONS COMPETITIVE POSITION
• Industrial coatings such as powder, • World leader in selected markets coatings, coatings for wood, metal, coil, and plastics, e.g. for construction and building products, automotive, aircraft, appliances, and furniture
• Resins for coatings and printing inks • Leading in selected market niches
• Resin impregnated paper for surfacing of • World leader in the noncaptive market wood panels
• Adhesives and resins for wood products • Leader in selected market niches such as wood panels, furniture, floors, doors, etc
• Printing inks for the graphic and packaging • Global leader in narrow web inks; market industries leader in the Nordic countries and Turkey
CHEMICALS
Specification, functional, and • Pulp bleaching, manufacture of paper and • World leader in pulp bleaching chemicals specialty chemicals board and strong worldwide position in paper chemicals 1999 sales EUR 3.8 billion • Functional chemicals such as chelates, • Leading and strong worldwide positions flame retardants, CMC, animal feed additives, and intermediates such as carbon disulfide, monochloroacetic acid, ethyleneamines and methylamines
• Surfactants and fatty acids used in • Leading and strong worldwide positions detergents, cleaning, personal care, and for numerous industrial uses such as asphalt, oil, agro, mining, and textile. Thickeners, additives for paints and building materials
• Polymer producing industry • Leading worldwide positions in polymerization catalysts such as organic peroxides, metal alkyls, custom- manufactured Ziegler-Natta systems, and metallocenes
• Chlorine, caustic soda for industrial • Leading positions in Northwest Europe applications
• Salt for electrolysis, other industries, and • Leading position in Northwest Europe consumer use
• Catalysts for the oil refining and chemical • The world’s second largest supplier of industries refinery catalysts
• Plastic additives such as stabilizers and • Leading supplier in Europe radiation curing agents
Akzo Nobel also conducts chemical activities through joint ventures. In 1999, sales of these nonconsolidated companies aggregated EUR 1.7 billion on a 100-percent basis.
AKZO NOBEL ANNUAL REPORT 1999 25 KEY FIGURES AND RATIOS
BUSINESS SEGMENTATION
Net sales Operating income** Invested capital Number of employees at year end at year end Millions of euros 1999 1998 1999 1998 1999 1998* 1999 1998
Pharma 2,865 2,323 595 480 2,086 1,406 21,100 16,600 Coatings 5,504 4,765 466 401 2,308 2,264 30,900 32,100 Chemicals 3,835 3,394 367 320 2,704 2,583 14,500 14,100 Other*** (14) 53 (2) (23) 657 598 1,500 4,800 Continuing operations 12,190 10,535 1,426 1,178 7,755 6,851 68,000 67,600
Acordis 2,242 1,947 (62) 64 1,673 18,300 Akzo Nobel 14,432 12,482 1,364 1,242 7,755 8,524 68,000 85,900
Operating income** Operating income** Net sales/ as % of net sales as % of invested capital invested capital Ratios 1999 1998 1999 1998* 1999 1998*
Pharma 20.8 20.7 36.4 36.1 1.75 1.75 Coatings 8.5 8.4 20.4 21.1 2.41 2.51 Chemicals 9.6 9.4 13.9 12.2 1.45 1.30 Continuing operations 11.7 11.2 20.0 18.9 1.71 1.69
Acordis (2.8) 3.3 (3.7) 4.5 1.34 1.38 Akzo Nobel 9.5 10.0 15.5 16.2 1.64 1.63
Property, plant and equipment Expenditures/ Expenditures Depreciation depreciation Millions of euros/ratio 1999 1998 1999 1998 1999 1998
Pharma 199 173 121 95 1.6 1.8 Coatings 162 194 158 133 1.0 1.5 Chemicals 304 278 277 256 1.1 1.1 Other*** 25 39 26 45 Continuing operations 690 684 582 529 1.2 1.3
Acordis 107 135 158 132 0.7 1.0 Akzo Nobel 797 819 740 661 1.1 1.2
The terms and conditions for intercompany deliveries are negotiated at arm’s length and are therefore, in principle, identical with the ones used in transactions with third parties.
International intercompany deliveries are made in accordance with standard procedures that take due account of tax, currency, and pricing regulations in effect in the countries concerned.
* Restated for change in accounting principles. Reference is made to Change in Accounting Principles on page 64. ** Before nonrecurring items. *** Other activities, intercompany deliveries, and nonallocated items.
26 GEOGRAPHIC BREAKDOWN Net sales of continuing operations (EUR 12.2 billion)
by origin by destination
2% 5% Other regions 6% 9% Asia 4%
6% Latin America 23%
Number of employees at 24% USA and Canada December 31, 1999 (68,000)
17% Germany Sweden 5,100 4,700
5% 22% Other European countries United Kingdom 5,700 8% The Netherlands 12,900
8% 8% France Other regions Other European countries 15,400 9% 8% United Kingdom 1,900
4% Sweden Asia 7,700 18% 8% Germany
6% The Netherlands Latin America USA and Canada 4,500 10,100
Operating income Expenditures for Net sales, Net sales, before non- Invested capital, property, plant by destination by origin recurring items December 31 and equipment Millions of euros 1999 1998 1999 1998 1999 1998 1999 1998* 1999 1998
The Netherlands 862 797 2,583 2,556 316 273 1,840 1,929 214 196 Germany 1,436 1,339 1,944 1,627 58 109 101 848 68 74 Sweden 524 518 1,003 984 68 99 865 785 70 80 United Kingdom 1,164 1,000 1,406 955 30 56 820 1,184 69 89 Other European countries 4,327 3,915 2,814 2,607 498 405 1,649 1,273 121 147 Europe 8,313 7,569 9,750 8,729 970 942 5,275 6,019 542 586
USA and Canada 3,382 2,850 3,162 2,620 253 216 1,439 1,638 144 149 Latin America 841 790 566 565 53 43 415 451 36 31 Asia 1,223 756 687 398 55 20 449 296 35 38 Other regions 673 517 267 170 33 21 177 120 40 15 To ta l 14,432 12,482 14,432 12,482 1,364 1,242 7,755 8,524 797 819
Wider geographic spread The acquisition of Courtaulds by mid-1998 enlarged our bases, especially in the United Kingdom, the United States, and Germany. It also added to our presence in Asia, in particular for Coatings. The severe downturn of the textile cycle had a strong negative effect on Acordis’ results in the Netherlands, Germany, and the United Kingdom. Furthermore, earnings for Chemicals and Coatings were up in the Netherlands, while the restructuring of corporate R&D also had a positive impact. In Germany, Chemicals and Pharma achieved higher earnings, the latter also through the acquisition of HR Vet. The Coatings activities in the United Kingdom could not duplicate the previous year’s earnings. The lower Swedish results were due to Chemicals. The improvement in the other European countries mainly stemmed from Pharma. In the United States, earnings of Coatings and Pharma were higher. The Coatings activities in Latin America achieved a significant improvement in earnings. The Asian activities benefited from the recovery of various economies. The acquisition of the pharmaceutical activities of Kanebo also enlarged our Asian presence. ▼ For definitions of certain financial ratios and concepts
AKZO NOBEL ANNUAL REPORT 1999 27 see back cover foldout. ”Celestial Gift” by Hans Hovy in Sonsbeek’s Steep Garden, presented by Akzo Nobel to the City of Arnhem in commemoration of the Sonsbeek Park centennial.
28 Responsible in Business Units: General Managers: Board of Management: Organon Tjeerd Kalff Paul K. Brons Intervet A.T.M. (Toon) Wilderbeek Fritz W. Fröhlich (alternate) Organon Teknika R.R.M. (Bob) Salsmans Diosynth Johan C.C.B. Evers Group Director Technology: Chefaro A.H.J.M. (Ton) Scheepens Koen Wiedhaup (from February 1, 2000, Jan H. Dopper)
Pharma PHARMA
1999 business unit sales 1999 net sales
[EUR 3.1 billion] by destination
9% France
United Kingdom 6%
Organon 52% Germany 8% 21% Other European countries
The Netherlands 4%
Other regions 5% Chefaro 3%
Diosynth 11% 28% USA and Canada Asia 10% 17% Organon Teknika
Intervet 17% Latin America 9%
Millions of euros 1999 1998 SALES AND INCOME
Net sales 2,865 2,323 Pharma had a good year with significant sales volume growth across the board. Sales were EUR 2.9 billion, up 23 percent Operating income compared to the 11 percent increase registered in 1998. Volume before non- gains accounted for 13 percent, while average selling prices recurring items 595 480 remained unchanged; acquisitions added 8 percent. Operating Depreciation and income before nonrecurring items surged 24 percent to amortization 141 106 EUR 595 million, despite continued heavy spending in marketing and R&D to maintain growth momentum. Gross cash flow 736 586 Organon turned in an excellent performance, with all key Expenditures products contributing to substantial sales and earnings gains. for PP&E 199 173 Organon Teknika also achieved considerably higher results, R&D expenditures 400 337 favored by volume growth mainly in Pharmaceuticals but also in Diagnostics. Intervet sustained its high profitability level with Invested capital continued growth in sales and income. HR Vet, the veterinary at year end 2,086 1,406 company acquired from Hoechst, contributed to the results from November 1. Diosynth’s earnings remained strong and exceeded Key ratios the previous year’s level. Chefaro performed better than in 1998, Operating income which was principally attributable to cost reduction programs. as percentage of: – net sales 20.8 20.7 Return on sales was 20.8 percent, virtually on a level with the – invested capital 36.4 36.1 1998 figure. Return on investment was 36.4 percent, compared with a long-term target of 40 percent. Net sales/ invested capital 1.75 1.75
Expenditures for PP&E/depreciation 1.6 1.8
Number of employees at year end 21,100 16,600 ▼ For definitions of certain financial ratios and concepts 30 see back cover foldout. PHARMA
BUSINESS REVIEW
Growing Pharma: 23 percent in 1999 Paul K. Brons,
pictured at
As has so often been the case in the past few Diosynth’s high- decades, the healthcare industry underwent tech purification considerable restructuring in 1999. Eye-catching section of the new mergers led to increases in scale but also to downstream consolidation and capacity reductions in production processing facility and research. Again, some well-known names of in Oss, the leading companies disappeared into new Netherlands: combinations, while lesser known up-and-coming ”The Group again companies gained prominence. This continuous outperformed process of change reflects the dynamism of the market growth of healthcare market where a broad variety of the pharmaceutical pharmaceutical companies, large and small, product categories, market exclusivity for newly industry.” compete with changing chances of success in highly developed pharmaceuticals as provided by patents competitive, diversified, and innovating market etc. is—after the long development track—relatively segments. Of course, size is important in that it short. Product introduction is further delayed by provides critical mass for R&D, global marketing and other hurdles in marketing or price approvals, spreading risks, but in no way does size alone particularly by national authorities in Europe. guarantee continuity. As in other high-tech Moreover, the pace at which the global competition industries, it is the capacity to innovate and quickly works and innovates is so fast that it is often develop products that increasingly determines the difficult to enjoy to the full the short remaining success and longevity of individual pharmaceutical exclusivity period. companies. It is particularly pleasing that in this highly While the costs of pharmaceutical R&D continue to challenging and competitive environment, our increase, the time available to recuperate those Pharma group—a medium-sized player in the costs continues to fall. Unlike for many other healthcare market—in 1999 again far outperformed market growth of the industry by a sales increase of 23 percent. Most business units made significant contributions to this sales growth.
AKZO NOBEL ANNUAL REPORT 1999 31 The acquisition of Hoechst Roussel Vet made Intervet one of the global leaders in the animal health market, with a comprehensive product range of pharmaceuticals and vaccines.
32 PHARMA
Organon, which is traditionally strong in Europe, was November 1999, and all key integration issues were able to strengthen its position in the United States decided upon before year end. Of course, more time as it continued to roll out its new product pipeline. will be needed to realize the full effect of the The result was a 50-percent sales increase in that expected synergies. market, which also reflects the efforts of a rapidly growing and successful field force team of 1,250 at For Organon Teknika, too, product innovation was year-end. Organon’s European and, in particular, its the key success factor. The exclusivity period in the Asian business showed considerable growth. U.S. market of Organon Teknika’s pharmaceutical It significantly enhanced its strategic position in product Norcuron® came to an end, and the Japan with the acquisition of the western medicines business unit is now being faced with generic (copy) division of Kanebo, a group with which we have had products there. Nevertheless, the successful a promising development collaboration for development and introduction of innovative several years. successor products—Esmeron® (Zemuron® in some countries) and Raplon®—has helped Organon While geographic development is a key issue, Teknika to maintain and strengthen its leading Organon’s top priority remains further development position and prospects in the hospital market for of its R&D portfolio and the scientific quality and muscle relaxants. development expertise on which it is based. Increasing margins resulting from rapidly growing In 1999, Organon Teknika was again able to sales were used to a considerable extent to successfully increase its sales and installed strengthen the critical mass of Organon’s instrument base in diagnostics, allowing it to further international R&D and marketing organizations in improve its, as yet modest, profitability in this very the increasingly competitive pharmaceutical competitive market. As critical mass is of key marketplace. importance for marketing impact and adequate coverage of R&D and service costs, considerable Intervet—our animal healthcare business unit—had efforts, including a restructuring plan for several quite a successful track record based on high international sites, are being made to further autonomous growth through product innovation and improve Organon Teknika’s diagnostic position and geographic development. Yet, its total market earnings. potential still had not been fully exploited as its key field of expertise—biological medicines— Diosynth provides a strategically important represented an attractive but only limited part of technological and know-how basis for many of our the total veterinary market. The acquisition of Pharma group’s key products and projects. Despite HR Vet has radically changed that position and has having to provide unusual logistical flexibility to its created a new Intervet that as one of the leading internal and external clients, Diosynth achieved global players is now able to offer, service and significantly increased sales and solid financial further develop a broad range of excellent results. veterinary products. Full integration of the two operations—which have been considered ideal Chefaro, our smallest Pharma business unit, focused merger partners all along—started immediately in successfully on improving the market position in its key business areas—home pregnancy tests and vitamins—while enhancing overall profitability.
AKZO NOBEL ANNUAL REPORT 1999 33 Organon Inc. drives the strong growth of our presence in the U.S. female healthcare, antidepressants, and muscle relaxants markets from its headquarters in West Orange, New Jersey.
34 PHARMA
Developments in the Business Units 10 percent three years ago. The South American market was particularly affected by the devaluation of ORGANON – PRESCRIPTION DRUGS the Brazilian real. Aggregate sales in the European Sales EUR 1,620 million (1998: EUR 1,305 million) Union, Eastern Europe, and Turkey rose 15 percent. Asia saw growth surge 64 percent. The acquisition of Accelerated growth the western medicines division of Kanebo strengthened Organon’s R&D, Production, and Marketing/Sales Organon has an international reputation based on position in Japan, the second largest pharmaceuticals quality products and innovative R&D. It is among the market in the world. Sankyo’s 40 percent stake in the few companies conducting research into contraception. Nippon Organon joint venture was bought back. The business unit also produces fertility products and Organon’s business in Japan (based in Osaka) is now a medicines for the treatment of menopausal complaints. wholly owned subsidiary employing 900 people. In As an innovator in the field of psychiatric drugs, it January 1999 Organon received marketing approval for markets a sophisticated antidepressant. Livial® in Germany, followed by a successful introduction. Sales rose 24 percent compared with 13 percent in 1998, a rate of growth far above the industry average The new chemistry facility for Organon’s Central for the pharmaceuticals sector worldwide. Income was Nervous System (CNS) research was opened in substantially up from 1998, despite 20 percent higher Newhouse, Scotland, and construction has started on a R&D expenditures and a 29 percent increase in selling pharmacological laboratory. In Oss, the Netherlands, a and distribution costs. The headcount grew from 9,300 new quality control laboratory was commissioned. The to 11,200 at year-end 1999, with Marketing/Sales and construction of a pilot project unit at this site and the R&D accounting for the biggest increases. The sales and expansion of the chemical labs are on schedule and will marketing force in the United States increased from be ready in the course of 2000. 500 in 1996 to 1,250 in the year under review. All in all, this reflects strong development across the board. Partnerships with third parties in Research and in Development were further strengthened. In Production Growth rates of more than 25 percent were achieved in our cost efficiency drive and concentration of activities such countries as Germany, Italy, Spain, Mexico, the at key locations around the world continue as United States, Canada, and Japan. Together, these scheduled. In Marketing and Sales, the Time-to-Market countries account for more than 60 percent of the project was started. Following the completion of similar world market in pharmaceuticals. In the United States efficiency programs at Production, Logistics, and R&D, (some 40 percent of the global healthcare market) sales this project should allow us to introduce new products gained 50 percent. In 1999, 23 percent of Organon’s faster and more effectively. total sales were in the United States, against a mere
AKZO NOBEL ANNUAL REPORT 1999 35 PHARMA
Organon’s strategy for the further development of a Intervet’s strong organic growth in 1999 was again well smoothly communicating, flexible organization that above industry average, both in terms of sales and pilots new products through the R&D phase rapidly, income. The European market remained rather flat, but manufactures them effectively and reliably, and this was more than compensated by good performance launches them worldwide, aided by a creative and in the Americas and a gradually recovering Asia Pacific. dedicated team of expert marketeers, has full and unwavering backing throughout the organization. Local companies were established in Taiwan, Morocco, the Russian Federation, and Romania, reflecting The success of this approach is reflected in a number of Intervet’s determination to foster a strong market promising developments for the years ahead. Organon’s presence, particularly in Central and Eastern Europe. pipeline (see survey on page 24) includes six new products in reproductive medicine, three in CNS, and Two new anti-inflammatory products for dogs and one in the field of atherothrombosis. horses, Quadrisol® 5 and Quadrisol® IV 50, obtained Central EU registration, and the EU’s Mutual Recognition Procedure (MRP) was completed for INTERVET – VETERINARY PRODUCTS Bovilis® BVD, a bovine viral diarrhea vaccine. Sales EUR 515 million (1998: EUR 355 million) The European Committee for Veterinary Medicinal 1999, an exciting year Products (CVMP) approved Porcilis® Pesti®, Intervet’s marker vaccine against classical swine fever, a condition Intervet focuses on the veterinary medicine market that still threatens the European swine population. with vaccines and specialty products for both livestock and pets. Registrations for a number of poultry vaccines were obtained in the United States and Japan; in the latter In August, Intervet announced its intention to acquire country Intervet’s product range was significantly HR Vet in a move to place the company into the top bolstered. ranks of the global animal healthcare market. Concluded in November, the transaction—by far the In Singapore, construction started on a new largest in Intervet’s history and approved by the EU and aquaculture R&D unit, earmarked to become the center U.S. antitrust authorities—marks the emergence of of excellence for Intervet’s aquaculture activities in Asia. Intervet as the fourth largest player in the market. The new Pharmaceuticals R&D center in Angers, France, HR Vet’s string of successful pharmaceuticals perfectly was inaugurated in August. Both R&D and commercial complements Intervet’s biologicals-led product operations are now located at the same site. portfolio, significantly expands its geographic distribution, and creates a powerful platform for 2000 will be a challenging year, with a strong focus on innovative research and further expansion. integration and streamlining. Special teams have been set up to coordinate and accelerate the integration of In April, a majority shareholding was acquired in the HR Vet’s and Gellini/Nuova’s considerable assets. Italian veterinary companies Farmaceutici Gellini and Nuova ICC. Together with Intervet’s local organization, the combined operation now ranks number two in the Italian veterinary market.
36 PHARMA
ORGANON TEKNIKA – HOSPITAL SUPPLIES DIOSYNTH – ACTIVE INGREDIENTS Sales EUR 530 million (1998: EUR 460 million) FOR THE PHARMACEUTICAL INDUSTRY Sales EUR 335 million (1998: EUR 300 million) Double-digit growth A challenging year completed successfully Organon Teknika specializes in advanced systems and products for hospitals, laboratories, and blood banks. It Diosynth is a leading manufacturer of intermediate and has a leading position in surgical muscle relaxants and active pharmaceutical ingredients, with production monitoring equipment. facilities in several countries. Diosynth’s main products are heparin, insulin, gonadotropic hormones, steroids, Organon Teknika’s operating income, before synthetic peptides, carbohydrates, and opiate analogs. nonrecurring charges from restructurings in Diagnostics, substantially improved both in absolute Sales increased considerably in 1999, which was only terms and as a percentage of sales. The Pharma- partly the result of the incorporation of the former ceuticals product line recorded unprecedented volume Courtaulds Fine Chemicals business in the United growth, particularly in the United States as a result of Kingdom. Operational results also showed further an FDA-imposed withdrawal of a competitor product in improvement. late 1998. Market penetration of Esmeron® muscle relaxant (Zemuron® in the United States, Canada, and In the biotechnology area, Diosynth has a strong Argentina) improved substantially. Esmeron® is now position with biochemical extraction products and available worldwide, except for Japan where the biopharmaceuticals. Sales of extraction products, product is in final development. Recently, the FDA especially heparin, developed in line with expectations, approved Raplon®, a new fast onset, short duration whereas in biopharmaceuticals there was considerable surgical muscle relaxant. Raplon® was launched in volume growth caused by recFSH (Puregon®). October and initial feedback from the market indicates high customer acceptance. In general, there is strong demand for biopharmaceuticals, as the innovative pharmaceutical In Diagnostics, Microbiology and Nucleic Acid industry is heavily investing in the development of new Diagnostics performed strongly, aided by a new products by using genetically modified microorganisms generation of the automated blood culture and and cells. Diosynth wants to become a key player in this mycobacterium testing system BacT/Alert® 3D and field. During the year strong progress was made in further growth of the NucliSens® range, including the improving its position: a large downstream processing automated extractor system. Satisfactory results were facility will come on stream in 2000, and a project for achieved in Immunodiagnostics, with growth being considerable expansion of its upstream capacity is resumed in Southeast Asia after the economic under consideration. downturn in 1998. In Hemostasis, the geographic mix further improved. With the launch of our waveform Sales of organic chemical products grew strongly, due analysis technology, a powerful tool was introduced to to an increase in captive demand for strategically the laboratory market. Growth of the installed base of important active ingredients for Remeron®, Livial® and diagnostic systems will bolster the diagnostics business. muscle relaxants. This situation again challenged Diosynth to further optimize the utilization of its production capacity. To that end, Diosynth reallocated
AKZO NOBEL ANNUAL REPORT 1999 37 PHARMA
several production steps including the transfer of CHEFARO – NONPRESCRIPTION PRODUCTS processes to the new De Geer site in Oss, the Sales EUR 90 million (1998: EUR 90 million) Netherlands. Aided by its in-house expertise and skills, Diosynth was able during this reallocation to strike a Results continue to improve proper balance between flexibility and quality management in a multipurpose production Chefaro manufactures a range of nonprescription environment. medicines and diagnostic tests for home use.
As it is clear that demand for Diosynth’s chemical Portfolio adjustments combined with healthy growth in products will continue to increase, preparatory actions Chefaro’s main product categories contributed to to expand the production capacity were started. further earnings gains. In a difficult European OTC market, Chefaro continued to consolidate its position by R&D’s strategic objective is to develop sophisticated intensifying support to its leading brands. technologies and support their use for production purposes. These efforts have resulted in the successful Particularly gratifying were the results achieved by realization of several production projects, while others Chefaro’s home pregnancy tests and vitamin categories. are in an advanced stage of development. Product innovation and strong brand support resulted in a further strengthening of the European market leader position for Predictor® and Femtest® and in continued double-digit growth for the Davitamon® range in the Netherlands.
38 Responsible in Business Units: General Managers: Board of Management: Decorative Coatings: Ove H. Mattsson – South Rinus Rooseboom Rudy M.J. van der Meer (alternate) – North Jan Andersson Industrial Coatings Göran Jönsson Senior Group Director: Industrial Finishes Robert J. Torba Neville D. Petersen Marine & Protective Coatings Leif Darner Group Director Technology: Car Refinishes Cor J.L.M. de Grauw J. (Hans) D. Remijnse Industrial Products Lars-Erik Thomsgård Resins Klaas Hielkema Printing Inks Bengt Knutsson
Coatings
39 COATINGS
1999 business unit sales 1999 net sales
[EUR 5.5 billion] by destination
11% United Kingdom
Sweden 4% 9% France
Decorative Coatings 32%
Germany 9%
28% Industrial Coatings The Netherlands 5% and Finishes 26% Other European Other regions 5% countries
Other* 18% Asia 8%
11% Marine & Protective Coatings * Industrial Products 8% Resins 6% Printing Inks 4% 11% Car Refinishes Latin America 4% 19% USA and Canada
Millions of euros 1999 1998 SALES AND INCOME
Net sales 5,504 4,765 Coatings’ sales of EUR 5.5 billion were 16 percent higher than in 1998. The former Courtaulds businesses, now included for the Operating income full year, accounted for 13 percent of this increase, while the net before non- effect of other acquisitions and divestments was virtually nil. recurring items 466 401 Volumes gained 2 percent, while average selling prices were Depreciation and slightly lower. Operating income before nonrecurring items rose amortization 157 133 from EUR 401 million to EUR 466 million, an increase of 16 percent. Efficiency improvements led to slightly higher Gross cash flow 623 534 margins, partly offset by increased operating costs. The beneficial effects of the previous year’s acquisitions are Expenditures increasingly becoming apparent. for PP&E 162 194 R&D expenditures 146 125 Decorative Coatings registered income gains in most Western European countries and Turkey, bolstered by higher volumes and Invested capital cost control. Car Refinishes registered good results, particularly at year end 2,308 2,264 in Europe and the United States. Earnings of Industrial Coatings suffered from the crisis in Russia, while income of Industrial Key ratios Finishes was slightly ahead of the 1998 figure. Industrial Operating income Products earnings were distinctly higher, notably in Asia and the as percentage of: United States. Marine & Protective Coatings was hampered by – net sales 8.5 8.4 soft market conditions and came close to the previous year’s – invested capital 20.4 21.1 income figure. Results of Resins improved, while Printing Inks was in line with 1998. Net sales/ invested capital 2.41 2.51 Return on sales rose from 8.4 percent in 1998 to 8.5 percent in 1999. Our long-term target is 10 percent. Return on invested Expenditures for capital was 20.4 percent, compared to a target of 25 percent. PP&E/depreciation 1.0 1.5
Number of employees at year end 30,900 32,100
40 COATINGS
BUSINESS REVIEW
The strategic way forward – integration, focus, and Ove H. Mattsson: globalization ”We help to make the world more 1999 was another good year for Coatings. As a colorful.” result of a decision by the European Commission, the highly profitable former Courtaulds Aerospace and Sealants business had to be divested. The divestment had a significant negative impact on the development of operating income during the second half of the year.
Industrial activities in general were sluggish at the beginning of the year but picked up steadily to relatively high levels over the last four months. The new Marine & Protective Coatings business unit Results in Europe continued to grow, and the United created in 1998 became fully operational. Major States remained at a high level throughout the year. realignments were effected in the coil and, South America and many countries in Eastern particularly, in the powder coatings areas. Europe showed less progress, and major We successfully established ourselves as global restructuring programs were implemented in these market leaders in these two segments. In Decorative regions. Costs and investments were tightly Coatings, the European operations of BASF Deco controlled. Decorative Coatings, which had a weak and of Marshall Boya in Turkey, acquired in 1998, season in 1998 due to bad weather conditions, were integrated into our existing businesses. showed substantial improvements in most markets. Over the years Akzo Nobel has been very active in The restructuring of the worldwide coatings industry the process of the international restructuring of the continued its momentum, with further acquisitions coatings industry. The present portfolio includes and mergers, especially in the field of industrial activities where we have already achieved true coatings. In 1999, Akzo Nobel was less active in this global leadership positions or where we should be process, concentrating on the integration of its 1998 able to do so in the years ahead. In some areas, acquisitions, notably the former Courtaulds such as decorative coatings, Akzo Nobel has focused businesses. Thus, 1999 has been a year of on Europe. consolidation.
AKZO NOBEL ANNUAL REPORT 1999 41 In 1999, Decorative Coatings, with its renowned Sikkens® brand, played a key role in the renovation of La Scala. A team of 20 people worked eight months to restore the beauty and splendor of the 2,500 square meters façade of the world famous opera house in Milan.
42 COATINGS
The acquisitions made in the last few years have complemented with advanced marketing concepts. helped Akzo Nobel to further enhance its leadership All Coatings business units are currently positions in a number of clearly defined market implementing long-term technology plans, including segments: innovative programs in such areas as high-solids coatings, waterborne coatings, new coatings • In Decorative Coatings a broad European base has chemistry, colorimetry, powder and powder related been created, with leading positions in Eastern and coatings, pigment dispersions, and protective Western Europe as well as in adjacent areas, such as coatings concepts. Our ultimate goal is to serve our Turkey and North Africa. In the medium term the customers with efficient, state-of-the-art products in prospects in Eastern Europe are good. Western the years to come. European markets are mature, and new marketing concepts have been implemented to further strengthen our position. Our Turkish operation Developments in the Business Units performed well. DECORATIVE COATINGS • The Industrial Coatings and Finishes business units Sales EUR 1,780 million (1998: EUR 1,695 million) have achieved global leadership in several market segments and are now focusing on improvement of Working closely together, Decorative Coatings South their positions. Key account management has and North serve the professional and do-it-yourself become one of the major issues in the industrial markets. Major brands include Sikkens®, Levis®, coatings area. Exploiting our worldwide scope, we Astral®, Flexa®, Herbol®, Procolor®, Sadolin®, Trimetal®, further enhanced our customer services. To this end, Pinotex®, Crown®, Nordsjö®, and Marshall®. Leading a new sub-business unit has been established to adhesive brands are Schönox®, Cégécol®, and Casco®. serve customers in the global transportation industry, such as manufacturers of commercial In 2000, the European activities of the Decorative vehicles and subcontractors to the automotive OEM Coatings South and North business units will be manufacturers. The Marine & Protective Coatings combined. For the geographic areas not covered by this business unit strengthened its world leading new business unit, a separate business unit will position, acquiring the Chartek® hydrocarbon be formed. fire-protection coatings business from Textron, Inc. This addition to our extensive range of high performance protective coatings differentiates Akzo DECORATIVE COATINGS SOUTH Nobel from key competitors in the global oil and gas markets and will enable us to offer customers a Substantial improvement worldwide single source for coatings for both new construction and maintenance contracts. Decorative Coatings South is responsible for operations in the Netherlands, Germany, France, Belgium, Italy, • In 1999, we benefited from our newly acquired Spain, Switzerland, Austria, Morocco, Tunisia, North strong position in Eastern Asia as business and South America as well as for business development recovered fast from the major crisis. The outlook in in East Asia. this area is highly promising, and the strong network Akzo Nobel has in place will help all of our coatings 1999 was a good year for the business unit with businesses expand in these markets. improved performance in almost all geographic areas. Business was already strong early in the year and R&D focused on strengthening our proprietary gained momentum over the next quarters, spurred by coatings technology base to meet market demands the results of the restructuring programs implemented for environmentally adapted, technologically in recent years. In Germany production will be advanced, and economically attractive coatings concentrated at the Cologne site. concepts. The driving force behind our R&D efforts is customer orientation. These efforts are
AKZO NOBEL ANNUAL REPORT 1999 43 COATINGS
In France, market share, profitability, and sales many were left homeless. Akzo Nobel and employees continued to develop favorably, which underscores our made funds available for immediate relief and the policy of strengthening commercial distribution. In construction of new homes. Spain, gradual but steady progress is being made. The financial crisis in Russia had a negative impact on For the second year in succession, the German market our results in Russia, the Baltic States, and Ukraine. was flat. The integration of the former BASF decorative Performance in Poland was also weak. Construction of a coatings operations made substantial progress, and new paint factory for our Russian joint venture, Akzo benefits from the synergies are now becoming manifest. Nobel Dekor ZAO, near Moscow is running slightly Our organization in Germany introduced new marketing behind schedule. For the time being, our growing concepts for independent distributors and the do-it- customer base is being supplied with imported yourself segment. products.
Our Asian business suffered from stagnant economies. Performance in the United Kingdom and Ireland was Investments in this region focused on enhancing the roughly on a par with 1998; measures to enhance image and the awareness of the Levis® brand. As part efficiency and reduce costs have been introduced. of our effort to boost organic growth, a new distribution outlet was opened in Shanghai. Sales of the new “Decorative Effects” product line were highly encouraging in the markets where it was The reorganization in South America is now beginning introduced. The launch of Parkett Elastic™, a parquet to pay off. Despite the Brazilian currency crisis, adhesive that combines excellent environmental and earnings have been improving constantly and technical properties, also proved to be a commercial considerably throughout the year. success.
Astral, the newly acquired company in Tunisia, The business unit has adopted the use of E-business to performed well. enhance performance. This involves the adaptation of internal processes and close cooperation with our The business unit introduced a range of solvent-free business partners. In addition, brand presence on the lacquers for indoor use, which met with an excellent Internet has been extended and improved. market response.
INDUSTRIAL COATINGS AND DECORATIVE COATINGS NORTH INDUSTRIAL FINISHES Sales EUR 1,510 million (1998: EUR 1,475 million on a Continued strong progress full-year basis)
Decorative Coatings North is responsible for operations Akzo Nobel’s industrial coatings activities are organized in the United Kingdom, Ireland, the Nordic countries, in two global business units: Industrial Coatings and the Baltic states, Ukraine, Russia, Hungary, Poland, Industrial Finishes. Romania, Turkey, and Greece as well as the entire adhesive business. INDUSTRIAL COATINGS Overall, sales volumes in 1999 were slightly up from the previous year, while profit levels rose substantially. Strong product portfolio with leading market Strong positive developments were in particular shown positions by the paint activities in Denmark, Greece, and Turkey and the adhesive business in Germany and France. Industrial Coatings was regrouped in 1999 to meet the changing requirements of a rapidly globalizing The effect of the earthquake in Turkey in August on marketplace. The business unit now includes Powder business was temporary, and by September operations Coatings, Specialty Coatings, Aerospace Coatings, and were back to normal. In human terms, however, it was a all coatings for the Transportation sector (OEM for tragedy for our employees. Two lost their lives and commercial vehicles and components and their
44 COATINGS
subcontractors as well as for passenger car INDUSTRIAL FINISHES subcontractors). A comprehensive product and service portfolio is provided to end-users in the global Global market positioning transportation market, irrespective of the coatings technology or the substrate involved, making optimal Industrial Finishes is responsible for Akzo Nobel’s Coil use of the available expertise and geographic spread of and Wood Coatings activities. the activities. After a slow start of 1999 due to soft industrial market Overall, Industrial Coatings’ results lagged behind the conditions in Europe, earnings improved substantially in 1998 level. The business unit had a weak start and the course of the year. Major factors in improvement suffered in particular from substantially lower sales in were a consistently strong performance in North the Russian market. Fortunately, not all businesses America and a recovery of the markets in Europe, Asia, were affected in the same way. and South America.
Powder Coatings did well in 1999 and registered gains Wood Coatings in North America surpassed its previous in income and sales, aided by the successful integration year’s record earnings and registered double-digit of former Courtaulds businesses and a propitious growth in the frontier markets in Asia and South market development in Asia Pacific. America.
Sales of General Industrial Coatings were lower than The former Courtaulds coil coatings business was anticipated due to weak market conditions in Europe. successfully integrated; some restructuring was required, particularly in Europe. In July 1999, the After a tentative beginning, the reorganization of former Courtaulds European joint venture with Nippon nonstick coatings on a global basis proved to be Paint became part of Akzo Nobel’s operations, with successful. These coatings are produced in the United Akzo Nobel increasing its participation to 75 percent. States, Italy, and India. This business is now a European market leader with plants in Sweden, the United Kingdom, and Italy. Plastics Coatings, now integrated into the Transportation unit, were influenced by adverse Oxylin in Brazil, acquired in 1998, is the platform for conditions in Germany. Sales of Specialty Coatings in growth in the region. At the beginning of the year, this North America continued to rise. Sales gains were also company was adversely affected by the currency crisis achieved in South America. in Brazil. However, since mid-1999 our operations in South America have recovered, with Oxylin as the main In January 1999, Akzo Nobel assumed full ownership of driver. the aerospace coatings joint venture with The Dexter Corporation. This operation, renamed Akzo Nobel Aerospace Coatings, has become part of Industrial MARINE & PROTECTIVE COATINGS Coatings. Sales development has been positive, despite Sales EUR 610 million (1998: EUR 610 million on a full- problems encountered in separating the operations. year basis)
R&D efforts were focused on improving the eco- First steps forward in depressed markets efficiency of products and on supporting customers by developing productivity-boosting systems. Marine & Protective Coatings, with its International® brand name, combines the worldwide Marine, Protective, and Yacht Coatings operations and is the global market leader in all three areas. In March, Intersleek®, a revolutionary biocide-free antifouling, which works on a nonstick principle, was launched. The acquisition of the Chartek® hydrocarbon fire- protection coatings business from U.S.-based Textron Inc., complements our extensive range of specialized protective coatings.
AKZO NOBEL ANNUAL REPORT 1999 45 Marine & Protective Coatings’ Interpon® products were applied for high-quality long- term protection of many construction parts of the new 5-mile long Öresund bridge connecting Sweden and Denmark, to be opened in mid-2000. More than 500,000 liters of paint were used.
46 COATINGS
Marine Coatings successfully generated business in the started in Australia, a significant market in the region. new construction sector. This partly offset the downturn Operating costs for the region as a whole remained in maintenance and repair, where results were stable, even after absorbing the costs of the Australian adversely affected by excess capacity in world shipping startup. markets, which continued to depress freight rates and squeezed operators’ margins. The economic crises in Eastern Europe also had a negative impact on the Car Refinishes business, Protective Coatings sales fell worldwide, primarily due although the first signs of recovery were visible toward to poor oil prices at the beginning of the year and weak the end of the year. Overall results in the region were market conditions in Europe and Asia Pacific. In North down slightly from 1998, but still showed attractive America good progress was made and earnings were up structural profitability. from the previous year. In Latin America poor economic conditions initially hampered progress, but earnings In South America the business unit suffered from the gradually improved during the year. severe economic crisis afflicting the entire region. Nevertheless, performance significantly improved as Yacht Coatings sales were higher than in 1998, substantial reductions in operating costs were achieved. principally as a result of strong growth in the United States and Asia Pacific, in particular Australasia, and Export business to the rest of the world had another the integration of Akzo Nobel’s Sikkens® range of yacht good year with growth in volume and sales, and with a products, which were transferred to the business unit further strengthening of operating income. from Decorative Coatings South. Compared to 1998, substantial income gains were achieved, primarily reflecting strong sales in the United States. INDUSTRIAL PRODUCTS Sales EUR 465 million (1998: EUR 430 million)
CAR REFINISHES Strong recovery after slow start Sales EUR 600 million (1998: EUR 555 million) Industrial Products, trading under the name of Casco Very successful year Products, supplies impregnated papers, adhesives, and thermoplastic microspheres (Expancel®) to industrial Car Refinishes supplies paints and services to customers. professional repairers of cars and commercial vehicles. The main product lines include Sikkens® as the Operating income developed in line with rising sales. international high segment brand, together with a In the second half of 1999, the Asian and Central range of regional brands in the middle segment of the European markets started to improve. Performance in market. North America remained strong throughout the year.
The business unit had a very successful year with sales For Impregnated Paper the year started slowly, with low and operating income substantially up from the 1998 demand especially in Europe, resulting in overcapacity level. and price pressure. Due to the economic situation in Brazil, most exports to South America were lost. Europe and North America in particular performed very The Malaysia-based Asian operation, however, well. Earnings increased strongly due to strengthening performed very well with strong sales in China. As a margins. result of the improved business climate in Europe, combined with cost cutting measures, performance and In Asia Pacific there were clear signs of recovery as the margins improved in the second half of 1999. year progressed, with growing volumes and improving earnings performance. In July a new operation was Adhesives performed clearly better than in the previous year. In the second half of 1999 in particular, the Asian operations showed good sales and operating income. Interquím in Colombia, which was acquired in
AKZO NOBEL ANNUAL REPORT 1999 47 COATINGS
1998, made a major contribution to performance, in The strategic alliance with the Argentine-based Ascona spite of the adverse economic climate in group in printing ink resins was fully exploited in 1999, South America. and synergy effects are already discernible.
Sales of Expancel® expandable microspheres continued The share of new products has further increased, which to grow with a number of new applications. is an important indicator for the business unit’s capacity to innovate. A strong focus is being placed on new rheology control agents. Promising new products have RESINS been identified and introduced. Sales EUR 320 million (1998: EUR 275 million)
Steady progress PRINTING INKS Sales EUR 210 million (1998: EUR 185 million) Resins produces a range of specialized products for surface coatings, automotive coatings, and printing Improving performance inks. The business unit will be transferred to the Chemicals Group by July 1, 2000. The business unit produces printing inks for the graphics and packaging industries. In the Narrow Web In 1999, the business unit again registered strong gains segment it is the global market leader, with water- in sales and operating income in all three business based and UV-curing inks for the tag and label market. segments. Operating income was in line with the previous year. Most geographic areas did well. East Asia picked up Exports to Russia and other Eastern European faster than expected, but in South America the countries recovered in the second half of 1999, with recession was reflected in low volumes. good margins and a positive influence on results. Sales in the United States also rose, reflecting the effect of the integration of Werneke Inks acquired in 1998.
48 Responsible in Business Units: General Managers: Board of Management: Pulp & Paper Chemicals Dag Strömqvist Rudy M.J. van der Meer Functional Chemicals Simon J. Vogelaar * Ove H. Mattsson (alternate) Surface Chemistry Jan Svärd Polymer Chemicals Arend-Jan Kortenhorst Senior Group Director: Base Chemicals H.C.J. (René) Scheffers Conrad S. Kent Catalysts W.W. (Jon) Meijnen Plastics and Processing Additives Kees van Nierop Salt Floris A. Bierman Energy Gert N. van Ingen
* from January 1, 2000: Peggy Viehweger
Chemicals
49 CHEMICALS
1999 business unit sales 1999 net sales
[EUR 4.0 billion] by destination
18% Functional Chemicals Sweden 6% 6% United Kingdom
4% France
Germany 9%
Pulp & Paper Chemicals 20%
16% Surface Chemistry The Netherlands 9% 19% Other European countries Other regions 4%
* Base Chemicals 8% Asia 9% Catalysts 7% Plastics and 15% Polymer Chemicals 29% USA and Canada Processing Additives 7% Salt 6% Energy 3% Other* 31% Latin America 5%
Millions of euros 1999 1998 SALES AND INCOME
Net sales 3,835 3,394 Sales of EUR 3.8 billion were up 13 percent from the previous year’s figure, with 8 percent due to acquisitions, mainly the Operating income remaining 50 percent of the former Akcros joint venture, which before non- has been consolidated from October 1998. Chemicals registered recurring items 367 320 a 4 percent volume gain, while average selling prices were Depreciation and 1 percent below the 1998 level. Operating income before amortization 289 264 nonrecurring items rose 15 percent to EUR 367 million.
Gross cash flow 656 584 Polymer Chemicals, Surface Chemistry, and Energy clearly surpassed their previous year’s high earnings levels. Catalysts’ Expenditures results were significantly up from the disappointing 1998 level, for PP&E 304 278 aided by market improvement and cost saving measures. Plastics R&D expenditures 116 104 and Processing Additives also registered higher earnings. Pulp & Paper Chemicals suffered from the depressed North American Invested capital market for Bleaching Chemicals, while Functional Chemicals was at year end 2,704 2,583 not able to sustain the upward trend of recent years. Results of Base Chemicals and Salt were flat. Key ratios Operating income ROS and ROI were 9.6 percent and 13.9 percent, compared with as percentage of: targets of 10 percent and 15 percent over the business cycle. – net sales 9.6 9.4 – invested capital 13.9 12.2 Sales of nonconsolidated companies, on a 100-percent basis, totaled EUR 1.7 billion, against EUR 2.0 billion in 1998. Net sales/ Chemicals’ share in earnings of nonconsolidated companies invested capital 1.45 1.30 remained approximately at the same level (EUR 42 million against EUR 44 million in 1998), despite lower results of ROVIN Expenditures for and the consolidation of Akcros from October 1998. Flexsys PP&E/depreciation 1.1 1.1 continued its satisfactory performance.
Number of employees at year end 14,500 14,100
50 CHEMICALS
BUSINESS REVIEW
Strong performance Rudy M.J. van der Meer: The transformation of the worldwide chemical ”Continuously industry leading toward more specialization, with improving fewer players per segment, continued in 1999 at an Chemicals.” accelerated pace. Drivers for this trend are globalization and market power as well as economy of scale in R&D, sales, and manufacturing.
Chemicals’ strategy basically remains unchanged. Besides pruning the portfolio and increasing productivity in a continuous process, we continued to place a major emphasis on further enhancement of our leading positions in selected segments of the Pulp & Paper Chemicals and Polymer Chemicals chemical industry. These segments include a range continued to strengthen their positions in Asia. Pulp of specification, functional, and specialty chemicals. & Paper Chemicals acquired the Dongsung paper Efforts are concentrated on growing a stronger chemicals business with plants in Korea and China; presence in North America and Asia. Polymer Chemicals formed a majority-owned worldwide joint venture Coin Akzo Nobel Peroxides The most important events in line with this strategy with plants in Taiwan, China, and Belgium. were the divestment of Base Chemicals’ 50-percent Furthermore, Polymer Chemicals became the share in the PVC joint venture ROVIN, the decision to worldwide distributor for CIRS of antifouling and consolidate the fluid cracking catalysts (FCC) suspending agents, strengthening its position as production in Pasadena, Texas, and the decision to main supplier to the PVC industry, and divested its invest in a grassroots monochloroacetic acid (MCA) bis-phenol A (Dianol®) derivatives business. plant in Taixing, China, by Functional Chemicals.
AKZO NOBEL ANNUAL REPORT 1999 51 Functional Chemicals’ leading edge carbon disulfide production facility in Cikampek, Indonesia, combines the best of two worlds: advanced technology and environmental protection.
52 CHEMICALS
Decisions were made to upgrade Polymer Chemicals’ In general, business improved in 1999 quarter by U.S. infrastructure, including a solvent recovery unit quarter, driven by the healthy economic for both the Metal Alkyls facilities in Deer Park, circumstances in the United States, an improvement Texas, and the Polymerization Catalysts facilities in in the economic climate in Europe, notably in Edison, New Jersey. Germany, and continued improved conditions in Asia, except for Japan. All in all, this resulted in a Functional Chemicals closed down its piperazine salt strong Chemicals performance close to our targets. plant in Sweden and the former Courtaulds phosphorus-based flame-retardants operations in the United Kingdom. Developments in the Business Units
Plastics and Processing Additives (Akcros Chemicals) continued to restructure its European operations by PULP & PAPER CHEMICALS closing down the Burnley, U.K. site, and announced Sales EUR 805 million (1998: EUR 770 million) to discontinue operations in Roermond-West, the Netherlands, and divest its Venlo, the Netherlands Global presence in paper chemicals strengthened based stearates operations. Pulp & Paper Chemicals, known in the market as Eka Surface Chemistry acquired Petrofina’s fatty amines Chemicals, produces environmentally compatible pulp and derivatives business. A next round of major bleaching chemicals and chemicals for the manufacture rationalization and efficiency measures affected its of paper and board. European surfactant operations in Stenungsund and Stockvick, Sweden, and in Amersfoort, the Earnings were down from 1998. This was mainly due to Netherlands, and included the closure of its Eccles, a depressed pulp market in North America in the first U.K.-based surfactants plant and its Mölndal, six months of the year, leading to temporary Sweden nonylphenol operations. overcapacity and price erosion for sodium chlorate, a chemical for pulp bleaching. Base Chemicals decided to divest its Amsterdam based sulfuric acid products business and continued The pulp market in Europe improved during the year. its efficiency drive in Delfzijl, the Netherlands. Inventories in the Nordic countries fell, which had a positive impact on pulp production levels and the Also in 1999 it has been decided to divest our stake market for bleaching chemicals. in the Oriental Silica Ltd. joint venture in Thailand. In the second half of 1999, the North American market Our solar salt facility in Onslow, Western Australia began to pick up. Higher pulp production and increased was hit by cyclone Vance, and in consequence demand for sodium chlorate from pulp mills converting startup is delayed until 2001. to Elementary Chlorine Free (ECF) production following the implementation of the EPA ruling should improve Major startups in 1999 included a 360 MW the supply/demand ratio in 2000. cogeneration unit in Delfzijl, the Netherlands, and a 25 MW cogeneration unit in Mariager, Denmark, both operated through joint ventures. Our chlorine expansion in Rotterdam, the Netherlands, the upgraded chlorine facility in Skoghall, Sweden, the micronutrients plant in Sweden, and extensions of SB-latex coatings production in Finland and AKD-wax production in Sweden all came on stream.
In addition, our brand new facilities for CS2 in Indonesia and paper chemicals in China successfully started their operations during the year.
AKZO NOBEL ANNUAL REPORT 1999 53 The modernization of Surface Chemistry’s McCook, Illinois, specialty surfactants location has delivered a state-of-the- art production facility at world class standards. CHEMICALS
Our leadership in the global sodium chlorate market Earnings from methylamines came slightly under remains undisputed. The hydrogen peroxide market in pressure with lower selling prices partly offset by Europe was relatively stable during 1999, while the reduced raw material costs. Greater competition and North American market improved somewhat. ongoing turmoil in the European feed industry caused lower results for choline chloride, a feed additive Our paper chemicals business had another good year derived from trimethylamine. and turned in a better performance than in 1998. We strengthened our position in Asia with the The construction of a new chelates plant in Lima, Ohio, acquisition of Dongsung’s paper chemicals business in is in full swing and will come on stream by mid-2000. Korea and a strategic investment in a paper chemicals Results for chelates in the United States were plant in Suzhou, China. Operations in Asia, particularly disappointing, which was partly due to increased in Thailand and Indonesia, continued their favorable competition and a slowdown in the U.S. pulp industry. development. The paper chemicals business in North America also performed well. Our global position in The new Cikampek carbon disulfide plant in Indonesia silica sol improved further after the completion of a got off to a bright start this year to serve the Asian capacity expansion in North America. The styrene- rayon industry. In the United States, earnings from butadiene (SB) latex business, a 50/50 joint venture carbon disulfide decreased, reflecting lower demand between Eka Chemicals and Polymer Latex GmbH, from the rayon and agrochemical industry. reported satisfactory results, although raw material prices were up by the end of the year. Phosphorus chemicals performed above expectations. The former Courtaulds flame retardants plant in Akzo-PQ Silica, our 50-percent joint venture with Spondon, United Kingdom, was closed. The flame PQ Corporation, strengthened its position as European retardants business has been integrated smoothly. market leader in sodium silicates, posting higher results than in 1998. Results for ethyleneamines were lower than in 1998 due to price hikes for raw materials in the last quarter.
FUNCTIONAL CHEMICALS Sales EUR 715 million (1998: EUR 710 million on a full- SURFACE CHEMISTRY year basis) Sales EUR 640 million (1998: EUR 555 million)
Upward trend interrupted From restructuring to growth
Functional Chemicals’ principal products are chelates, Surface Chemistry produces surfactants and fatty acids flame retardants, carboxymethylcellulose (CMC), animal used in detergents, cleaning, personal care, and for feed additives and intermediates such as carbon numerous industrial uses, as well as thickeners and disulfide, monochloroacetic acid (MCA), ethyleneamines additives for paints and building materials. and methylamines. The restructuring of recent years, primarily in our The business unit was not able to sustain the upward European surfactants business, has contributed trend of recent years due to weak performance in some strongly to Surface Chemistry’s improved profitability. market segments, notably oil drilling, viscose, and pulp We successfully completed the modernization of our and paper. As a consequence, the business unit specialty ethoxylates plant in Stenungsund and registered lower results for CMC and MCA, carbon integrated Akcros Chemicals’ surfactants business as disulfide, and chelates. well as the fatty amine surfactants business recently acquired from FINA.
AKZO NOBEL ANNUAL REPORT 1999 55 CHEMICALS
The American surfactants operations continued to The CIRS antifouling and suspending agent product perform favorably. With the modernization of our North lines added to our portfolio were well received by our American plants nearing completion, the stage is set for polyvinyl chloride customers around the world. In the further growth of this business. course of the year our Dianol® nonoptical monomers business was divested. Paint & Building Additives registered performance gains as growth in the Asian market improved to precrisis levels. Oleochemicals had a good year with BASE CHEMICALS expanded capacity in Pasir Gudang, Malaysia, coming Sales EUR 325 million (1998: EUR 330 million) fully on stream. Position improved
POLYMER CHEMICALS The business unit produces chlorine and caustic soda Sales EUR 590 million (1998: EUR 525 million) for industrial applications.
Solid growth Despite a depressed PVC and caustic market, Base Chemicals managed to almost duplicate the previous Polymer Chemicals produces polymerization catalysts year’s earnings, helped by increased volumes and lower such as organic peroxides, metal alkyls, custom- costs. manufactured Ziegler-Natta systems, and metallocenes. During the year the expanded capacity at the Bolstered by a strong global economy and the strength membrane electrolysis plant in Rotterdam and the of the U.S. dollar against European currencies, Polymer upgraded chlor-alkali plant in Skoghall, Sweden, came Chemicals’ sales set new records for the third on stream. consecutive year. Healthy growth was recorded in Europe, where we extended the capacity of our A Letter of Intent has been signed with PVS Chemicals polymerization catalysts plant in Seneffe, Belgium, and Inc. to take over our European sulfuric acid products our formulations unit in Deventer, the Netherlands. business in Amsterdam. The Americas grew with the strong polymer market in North America, and we maintained our leading market The results of Netherlands-based 50-percent VCM/PVC positions. South American results endured the joint venture ROVIN were still positive, despite the devaluation of the Brazilian real in the first quarter. depressed PVC market. The sale of ROVIN to Shin-Etsu, will further strengthen our chlor-alkali activities in The Asia Pacific region, except for Japan, experienced Rotterdam. market demand recovery and we continue to strengthen our position there. The newly acquired Korean amides The results of the 50-percent joint venture ECI Elektro- business, Akzo Nobel Amides, contributed positively to Chemie Ibbenbüren, Germany, were negatively our results in its first year of operation, as did our influenced by low caustic prices. Chinese organic peroxides business, Tianjin Akzo Nobel Peroxides, in its second year. Toward the end of 1999 Despite lower prices, the results of the 30-percent joint we started up a majority-owned dicumyl peroxide joint venture Methanor, the Netherlands, slightly improved, venture, Coin Akzo Nobel Peroxides. This new company reflecting higher volumes and lower costs. is the world market leader in this segment of the organic peroxides business with plants in Taiwan, China, and Belgium.
56 CHEMICALS
CATALYSTS PLASTICS AND PROCESSING ADDITIVES Sales EUR 295 million (1998: EUR 250 million) Sales EUR 260 million (1998: EUR 240 million on a full- year basis) Gains in high added value markets and lower costs improved results Improved profitability
Catalysts, which produces catalysts for the oil refining The business unit produces plastic additives, such as and chemical industries, showed significant stabilizers, and radiation curing agents. improvements in all product lines. Sales growth for the business sectors, the implementation of R&D projects Both sectors of Plastics and Processing Additives which strengthened technological leadership, and (Akcros Chemicals) improved profitability in 1999. substantial cost reductions led to a record income gain. In Plastics Additives pressure on margins continued in Our unique position as a complete refinery catalyst various fields, especially for rigid PVC and polyolefin supplier was improved by the introduction of additives end-uses. Manufacturing restructuring, including the and services. closure of the facilities at Burnley, United Kingdom, and Roermond-West, the Netherlands, is under way. Lower costs and higher market share in the Americas The recent introduction of a new company-wide supply and Asia drove FCC improvement. We began the chain system will reduce production costs and improve implementation of several FCC technologies, leading to logistics and customer service. A new generation of better products and lower production costs. Leadership “green” stabilizers to replace lead and cadmium in in resid FCC, the highest added value segment, was several end-uses is in an advanced state of strengthened. development. Additives for flexible PVC end-uses showed improvements for tin stabilizers and biocides, New HPC (STARS) technologies help refiners meet the which were offset by a fall in epoxy prices. most stringent fuel specifications at low costs. Efforts are under way to ensure structural long-term In Processing Chemicals sealants and stearates profitability. The HPC market is hardly expected to performed well, although the high pound sterling had grow, despite stricter fuel specifications, as new, more an adverse effect on margins for UV curing chemicals. effective catalyst technologies, in which we play a In the United States earnings were up across the board. leading role, will come to the marketplace. Volume of UV curing chemicals increased, notably in monomers. FCC-S.A., the Brazilian joint venture, achieved reasonable results, in the face of currency fluctuations. Nippon Ketjen Company, the Japanese joint venture, SALT posted good financial and technological results. Eurecat Sales EUR 235 million (1998: EUR 230 million) results are stable relative to the previous year, despite disappointing market growth. Consistent good performance
The business unit produces salt for electrolysis, other industries, and consumer use.
Earnings for Salt were sustained at the same level as in the previous year. Despite continuously increasing competitive pressure and overcapacity in the market, we maintained our historically strong positions.
AKZO NOBEL ANNUAL REPORT 1999 57 CHEMICALS
Sales of electrolysis salt to the chemical market were OTHER ACTIVITIES lower due to a decrease in European chlorine production. Specialty salt sales volume increased, Flexsys reflecting high product quality, high customer service The 50-percent rubber chemicals joint venture levels, and the strong reliability of our supply centers. maintained its global market share across the board. Improved volumes in Asia Pacific were offset by The successful startup of the cogeneration plant— declining prices worldwide, resulting in earnings that operated through a joint venture—in Mariager, were virtually unchanged from the 1998 level. Denmark, considerably reduced the variable production cost at this location. The new rubber chemicals plant in Antwerp, Belgium, has achieved its design capacity. The plant uses a Our solar salt facility in Onslow, West Australia, was hit revolutionary process for the production of a key by the cyclone Vance, the strongest yet in Australia’s intermediate for antidegradants based on patented, recorded history. The resulting delay of the startup environmentally friendly technology. permitted an overall improvement of the facility to meet the latest standards. We will start shipping product into Progress was made on the new Malaysia investment for the Asia Pacific market in 2001. a world-scale Crystex® insoluble sulfur facility to serve the growing market in Asia Pacific.
ENERGY Delamine Sales EUR 125 million (1998: EUR 125 million) The 50-percent joint venture Delamine was not able to pass on steep increases in raw material prices, resulting Powering the future in lower earnings than in 1998.
In 1999 the new state-of-the-art cogeneration unit of the Delesto joint venture in Delfzijl, the Netherlands, was successfully brought into operation, contributing to record earnings.
Further energy savings at various Dutch Akzo Nobel sites, amounting to 2 percent of the Company’s consumption in the Netherlands, were reported via the Energy Efficiency Program.
58 Board of Management
Folkert B. Blaisse Chief Executive Officer
Peter L. Rogers Deputy Chief Executive Officer
Patrick Shanley Chief Financial Officer
Peter Wack Executive Director
59 Millions of euros 1999 1998 ACORDIS – ON ITS OWN NOW
Net sales 2,242 1,947 Since January 1, 1999, Acordis has operated as a stand-alone company with its own Board of Management. During the year Operating income the integration of the Akzo Nobel and former Courtaulds before non- businesses was successfully completed. Simultaneously, Acordis recurring items (62) 64 was prepared for divestment. Depreciation and amortization 160 134 Acordis’ strategy
Gross cash flow 98 198 With the aim of developing a growing and soundly profitable business, Acordis has adopted the following strategy: Expenditures for PP&E 107 135 • build on worldwide leading positions in industrial, medical, and R&D expenditures 49 53 specialty fibers and related materials
Invested capital • enter into strategic alliances in those businesses where at year end * 1,673 partnerships will strengthen long-term profitability
Key ratios • divest noncore activities Operating income as percentage of: • act to reduce structural overcapacity – net sales (2.8) 3.3 – invested capital (3.7) 4.5 • grow through product, process and business innovation
Net sales/ A great deal of progress has already been made in achieving invested capital 1.34 1.38 these strategic goals.
Expenditures for PP&E/depreciation 0.7 1.0
Number of employees at year end * 18,300
* Acordis was deconsolidated at December 31, 1999. 60 ACORDIS
SALES AND INCOME BUSINESS REVIEW
Cyclical downturn Acordis’ sales totaled EUR 2.2 billion, up 15 percent from the previous year. Of this increase, 22 percent is During the first quarter it became apparent that the due to the fact that in 1999 sales of the former downturn which began in the second half of 1998 had Courtaulds activities were included for the full year and become particularly severe. For textile applications this in 1998 only for the second half. When this effect is was aggravated by: excluded, sales were 7 percent lower, largely due to a • continuing weakness of the retail trade in major 7 percent decline in volume reflecting lower demand for European countries; fibers for textile applications, while average selling • the crisis in Asia which, combined with the existing prices were slightly below the 1998 level. overcapacity in that region and Chinese import restrictions, led to higher exports by Asian textile and Operating income before nonrecurring items fell from clothing producers to European and North American EUR 64 million in 1998 to a loss of EUR 62 million in markets; 1999. The operating loss of the textile businesses was • a substantial increase in low-priced fiber imports. not fully offset by operating income of the industrial businesses. The European producers of man-made textile fibers faced dramatic declines in sales and, as a leading producer, Acordis felt the full impact of these developments.
Satisfactory performance of industrial businesses; sharp decline in demand for textile cellulosic filament
The industrial business as a whole performed satisfactorily. Colbond® nonwovens and Airbag Yarns achieved strong growth in sales and income.
AKZO NOBEL ANNUAL REPORT 1999 61 ACORDIS
With the exception of Speciality Fibres (products for medical and superabsorbent markets), the Textile Group suffered from the cyclical downturn due to a dramatic reduction in demand—particularly in ladies outerwear in Western Europe—for textile cellulosic filament yarns. Enka® textile viscose filament and Novaceta (the joint venture with Snia Fibre, producing acetate filament yarns) faced substantial underutilization of capacity. In addition, acrylic fibers were plagued by adverse trading conditions, mainly due to escalating increases in raw material prices after a sharp reduction.
Measures being implemented
A number of cost efficiencies had already been initiated during 1998, resulting in a personnel reduction of 850. The measures taken included efficiency programs at Membrana, Acetate Chemicals, and Enka. As the severity of the downturn became clear, Acordis announced additional measures in April 1999, including a reduction of production capacity for Viscose filament and a shutdown of the Acrylic dry spinning plant at Kelheim in Germany. These measures involved 1,200 extra job losses, about 7 percent of the workforce.
Acordis looking with confidence to new future
After a period of uncertainty during the spin-off process, Acordis is now well-positioned to face the challenges of the new millennium, with CVC Capital Partners (64 percent), Akzo Nobel (21 percent), and Acordis Management (15 percent) as its shareholders. Acordis is looking to the future with confidence based on its leading market positions, good products, and experienced employees.
62 FINANCIAL STATEMENTS
AKZO NOBEL ANNUAL REPORT 1999 63 Summary of Significant Accounting Policies
Change in Accounting Principles Statements of income in foreign currencies are translated In line with recently issued directives of the Netherlands into euros at average exchange rates. Accounting Standards Board, the Company changed its accounting for deferred tax assets. Deferred taxes are now Foreign exchange differences are included in income, except capitalized if their realization is more likely than not. for foreign exchange differences resulting from translation The Company used to deduct taxes from losses and tax into euros of intercompany loans and of shareholders’ credits to the extent that they could be offset against taxes equities of affiliated companies outside the Netherlands; charged to income in previous years. the latter differences are directly added to, or deducted from, equity. The comparative figures for 1998 have been adjusted accordingly. The impact on the 1998 tax charge was an Before being consolidated, the financial statements of increase by EUR 35 million, while Akzo Nobel N.V. affiliated companies established in hyperinflationary shareholders’ equity at December 31, 1998, was EUR 79 countries are adjusted for the effects of changing prices. million higher. Under the former accounting principles 1999 taxes on operating income less financing charges would have Exchange Rates of Key Currencies been EUR 19 million lower. The principal exchange rates against the euro used in The aforementioned deferred tax assets have been included drawing up the balance sheet and the statement of in financial noncurrent assets in the balance sheet. income are:
Introduction of the Euro (EUR) Statement All amounts in these financial statements are in euros, which Balance sheet of income currency was introduced on January 1, 1999. 1999 1998 1999* 1998* All prior-year figures have been restated in euros, using the fixed conversion rate of EUR 1.00 = NLG 2.20371 applicable USD 1.003 1.166 1.067 1.107 since January 1, 1999. SEK 8.560 9.458 8.781 8.815 GBP 0.621 0.704 0.655 0.670 Consolidation * Average rates. The consolidated financial statements include the accounts of Akzo Nobel N.V. and its subsidiaries. Subsidiaries are Principles of Valuation of Assets and Liabilities companies of which Akzo Nobel N.V. directly and/or indirectly has control. All of the assets, liabilities, and results of the Intangible Assets consolidated companies are included. Minority interest in Purchased goodwill is charged directly against equity. equity and earnings is shown separately. Results arising from Other intangible assets are capitalized and amortized on a transactions between consolidated companies are straight-line basis over their estimated useful life, which in eliminated. the majority of cases is 10 to 15 years. Preparation and start-up expenses of large investment projects are capitalized Valuation and, after the facilities concerned have been put into service, The principles of valuation and determination of income used are amortized on a straight-line basis over the estimated in the consolidated financial statements are based on useful lives of such facilities. historical cost. Property, Plant and Equipment Translation of Foreign Currencies Property, plant and equipment are valued at cost less In the balance sheet, amounts in foreign currencies are depreciation. Cost includes the financing charges of capital translated into euros at year-end exchange rates. Where investment projects under construction. Capital investment currency hedging contracts have been entered into, grants are deducted from property, plant and equipment. translation is based on the exchange rates stated in these Depreciation is computed by the straight-line method based contracts. Exchange differences on anticipatory hedges of on estimated useful life, which in the majority of cases is 10 firm commitments regarding sales and purchases are years for plant equipment and machinery, and which ranges deferred on the balance sheet until the hedged transactions from 20 to 30 years for buildings. In cases where the book have been reflected in the accounts. value so computed permanently exceeds the value to the business additional write-downs are made.
64 Financial Noncurrent Assets Principles of Determination of Income Investments in nonconsolidated companies are stated at the The determination of income is closely associated with the amount of Akzo Nobel’s share in shareholders’ equity. The valuation of assets and liabilities. In addition, the following calculation of shareholders’ equity is based as much as principles are observed in the preparation of the statement possible on the Akzo Nobel principles of valuation. of income: Loans to nonconsolidated companies are carried at face value less such provisions as are considered necessary. • Net sales is defined as the revenue from the sale and Other financial noncurrent assets are stated at face value, delivery of goods and services, net of rebates, discounts, and at cost, or at lower market value. similar allowances, and net of sales tax.
Inventories • Cost of sales comprises the manufacturing cost of the goods Inventories are stated at the lower of cost or net realizable and services sold and delivered, and any inventory write- value. Cost, defined as the full manufacturing cost related to downs to lower net realizable value. the stage of processing, is determined by the first-in first-out Manufacturing cost includes such items as: (FIFO) method. Provisions are made for obsolescence. - the cost of raw materials and supplies, energy, and other materials; Receivables - depreciation and the cost of maintenance of the assets Receivables are stated at face amounts less such provisions used in production; as are considered necessary. - salaries, wages, and social charges for the personnel involved in manufacturing. Cash and Cash Equivalents Cash and cash equivalents are carried at face value, with the • Interest on interest swaps is included in the statement of exception of marketable private borrowings and marketable income under financing charges. securities, which are valued at the lower of cost or market. • Taxes on income comprise both current and deferred taxes. Provisions Provisions are stated at face value, except for provisions in • Income from nonconsolidated companies consists of respect of pension obligations and other such obligations, Akzo Nobel’s equity in earnings of these companies and which are generally computed on an actuarial basis. interest on loans granted to them, with due allowance being Provisions for environmental cleanup costs are recorded made for taxes relating to these items. when it is probable that a liability has been incurred, and the amount involved is reasonably estimable. Earnings per Share Earnings per common share are calculated by dividing net Deferred taxes income by the weighted average number of common shares Deferred tax assets and liabilities are based on timing outstanding during the year. The weighted average number differences between the valuation of assets and liabilities for of common shares outstanding was 285,441,344 for 1999 accounting purposes and the valuation for tax purposes, at and 285,296,603 for 1998. current rates. Deferred tax assets, including assets arising from losses carried forward, are recognized if it is more likely than not that the asset will be realized. Nonrefundable dividend taxes are taken into account in the determination of provisions for deferred taxes to the extent of earnings expected to be distributed by affiliated companies.
Long-Term and Short-Term Debt Long-term and short-term debt are stated at face value.
AKZO NOBEL ANNUAL REPORT 1999 65 Consolidated Statement of Income
Millions of euros 1999 1998*
NOTE
Net sales 1 14,432 12,482 Cost of sales (8,514) (7,318)
Gross margin 5,918 5,164 Selling expenses (3,136) (2,667) Research and development expenses (726) (650) General and administrative expenses (740) (653) Other results 2 48 48
(4,554) (3,922)
Operating income before nonrecurring items 1,364 1,242 Nonrecurring items 3 (41) (165)
Operating income, after nonrecurring items 1,323 1,077 Financing charges 4 (275) (207)
Operating income less financing charges 1,048 870 Ta xe s 5 (344) (303)
Earnings of consolidated companies after taxes 704 567 Earnings from nonconsolidated companies 52 45 Nonrecurring loss nonconsolidated company (12) (22) 6 40 23
Earnings before minority interest 744 590 Minority interest (25) (16)
Net income before extraordinary items 719 574 Extraordinary items after taxes 7 (515)
Net income 204 574
Net income excluding extraordinary and nonrecurring items 759 703
Per share, in EUR: Net income 0.71 2.01 Net income excluding extraordinary and nonrecurring items 2.66 2.46
See notes on pages 70 and 71.
* Restated for change in accounting principles. Reference is made to Change in Accounting Principles on page 64.
66 Consolidated Balance Sheet
AFTER ALLOCATION OF PROFIT
Millions of euros, December 31 1999 1998*
NOTE Assets
Noncurrent assets Intangible assets 9 304 132 Property, plant and equipment 10 4,435 5,311 Financial noncurrent assets: 11 – nonconsolidated companies 644 466 – deferred tax assets 244 79 – other financial noncurrent assets 394 402 1,282 947 6,021 6,390
Current assets Inventories 12 2,091 2,291 Receivables 13 2,981 2,823 Cash and cash equivalents 14 932 536
6,004 5,650
To ta l 12,025 12,040
Equity and liabilities
Equity 15 Akzo Nobel N.V. shareholders’ equity 1,861 1,899 Minority interest 154 190 2,015 2,089
Provisions 16 1,835 2,102
Long-term debt 17 2,678 2,672
Short-term debt Short-term borrowings 18 2,803 2,663 Current liabilities 19 2,694 2,514
5,497 5,177
To ta l 12,025 12,040
See notes on pages 71 through 76.
* Restated for change in accounting principles. Reference is made to Change in Accounting Principles on page 64.
AKZO NOBEL ANNUAL REPORT 1999 67 Consolidated Statement of Cash Flows
Millions of euros 1999 19981)
Earnings before minority interest 229 590 Depreciation and amortization 776 683 Cash flow 1,005 1,273 Other adjustments to reconcile earnings to cash provided by operations: –book loss on Acordis and ROVIN divestment 483 – write-downs 13 94 – equity in earnings of nonconsolidated companies (57) (53) – dividends from nonconsolidated companies 46 87 – changes in provisions (217) 99 – other changes 22 37 290 264 Change in working capital2) 140 (249) Net cash provided by operations 1,435 1,288
Purchase of intangible assets (24) (47) Expenditures for property, plant and equipment (797) (819) Investments in nonconsolidated companies (35) (10) Acquisition of consolidated companies3) (725) (2,975) Proceeds from sale of interests3) 1,039 287 Other changes in financial noncurrent assets4) 19 22 Net cash used for investments (523) (3,542) 912 (2,254)
Issuance of shares 2 3 New long-term debt 230 1,143 Repayment of long-term debt (479) (162) Changes in short-term borrowings (8) 1,816 Net cash (used for)/provided by financing activities (255) 2,800 657 546 Dividends paid (304) (296) 353 250 Effect of exchange rate changes on cash and cash equivalents 43 (31) Change in cash and cash equivalents 396 219
Cash and cash equivalents at beginning of year 536 317 Cash and cash equivalents at end of year 932 536
See note on page 76.
1) Restated for change in accounting principles. Reference is made to Change in Accounting Principles on page 64. 2) Inventories and receivables less current liabilities, exclusive of dividends. 3) Net of cash of acquired or divested interests. 4) Excluding deferred tax assets.
68 Notes to the Consolidated Financial Statements
GENERAL The transaction value of the divestment was determined at EUR 825 million based on the debt-free December 31, 1998 Unless stated otherwise, all amounts are in millions of euros. balance sheet and an assumed capital expenditure level for 1999. The substantial reduction of working capital and Affiliated Companies capital expenditures during 1999 resulted in a value of A list of affiliated companies, drawn up in conformity with approximately EUR 640 million. Further adjustments could sections 379 and 414 of Book 2 of the Netherlands Civil be possible, however, they are not likely to have a significant Code, has been filed with the Trade Registry of Arnhem. effect on the financial statements.
Changes in Consolidated Interests The closing balance sheet of Acordis at the time of divestment is stated below. The impairment writedown of Courtaulds Acquisition EUR 300 million mentioned before is recognized herein. Early in July 1998, the Company acquired all ordinary shares of Courtaulds plc (Courtaulds) through a public offer. The Property, plant and equipment 938 Courtaulds accounts have been consolidated in Akzo Nobel’s Financial noncurrent assets 89 financial reporting since the beginning of July 1998. Inventories 411 Receivables 365 In April 1999, CPFilms Inc.–the former Courtaulds Cash and cash equivalents 21 performance films business–was sold for an amount of Total assets 1,824 EUR 192 million. At the end of July 1999, PRC-DeSoto International, Inc.–the former Courtaulds Aerospace Minority interest 29 Coatings and Sealants business–was divested for a Provisions 241 consideration of EUR 500 million. The total gain of EUR 520 Long-term debt 7 million on these divestments was recognized in shareholders’ Short-term borrowings 13 equity as a reduction of the goodwill on the Courtaulds Current liabilities 429 acquisition. Total liabilities 719 Net book value 1,105 During 1999, additional purchase accounting adjustments were made for an amount of EUR 338 million, mainly related The resulting pretax extraordinary book loss on the Acordis to an impairment writedown of EUR 300 million for certain divestment was EUR 465 million. former Courtaulds fibers activities. Other Changes in Consolidated Interests Acordis Divestment In April 1999, the Company acquired the pharmaceutical After the Courtaulds acquisition, the fibers operations of business of Kanebo Ltd., Japan, for EUR 97 million. Akzo Nobel and Courtaulds were combined into a separate The goodwill on this acquisition amounted to EUR 28 million. organization, named Acordis. The launch of Acordis as a stand-alone company required various separation and Early in November 1999, the Company acquired Hoechst restructuring measures, which resulted in an extraordinary Roussel Vet, the veterinary business of Hoechst AG. The total loss of EUR 275 million before taxes. consideration was EUR 546 million, leading to a goodwill of EUR 300 million. At December 31, 1999, Acordis was sold to a newly established company. CVC Capital Partners holds a In December 1999, Akzo Nobel sold its 50-percent share in 64-percent stake in equity of this company, while Acordis the PVC joint venture ROVIN v.o.f. for a consideration of management holds 15 percent. Akzo Nobel acquired the EUR 56 million, leading to a pretax book loss of EUR 18 remaining 21 percent, which is valued at EUR 49 million. million. Akzo Nobel also extended a subordinated loan to Acordis of EUR 138 million. The 21 percent stake in equity and the loan During 1998 and 1999, Akzo Nobel acquired and are included in the balance sheet under nonconsolidated deconsolidated various other businesses, none of which were companies. significant to the consolidated financial statements.
AKZO NOBEL ANNUAL REPORT 1999 69 CONSOLIDATED STATEMENT OF INCOME In 1998, nonrecurring charges for restructurings and writedowns were as follows: Note [1] Net Sales Corporate R&D (74) By activity 1999 1998 Chemicals (64) Acordis (20) Pharma 2,865 2,323 Coatings (7) Coatings 5,504 4,765 (165) Chemicals 3,835 3,394 Acordis 2,242 1,947 Note [4] Other activities and Financing Charges intercompany deliveries (14) 53 14,432 12,482 1999 1998
Given the minor importance of other activities (1999 sales: Interest received and EUR 74 million; 1998 sales: EUR 137 million), they have similar income 25 43 been combined with intercompany deliveries. Interest paid and similar expenses (300) (250) By destination 1999 1998 (275) (207)
The Netherlands 862 797 Interest paid was reduced by EUR 9 million (1998: EUR 12 Germany 1,436 1,339 million) due to the capitalization of financing expenses of Sweden 524 518 capital investment projects under construction. United Kingdom 1,164 1,000 Other European countries 4,327 3,915 Note [5] USA and Canada 3,382 2,850 Taxes on Operating Income less Financing Charges Latin America 841 790 The reconciliation of the corporation tax rate in the Asia 1,223 756 Netherlands to the effective consolidated tax rate is as follows: Other regions 673 517 14,432 12,482 Note [2] Percentage 1999 1998 Other Results Corporate tax rate 1999 1998 in the Netherlands 35 35 Effect of lower tax rates Royalties 39 22 in specific countries (4) (2) Results on sale of redundant Tax exempt income – (1) assets (1) 7 Losses of the year, not recognized Currency exchange differences (2) 1 as deferred tax asset 2 3 Other items 12 18 33 35 48 48 Note [3] At December 31, 1999, losses carried forward for which no Nonrecurring Items deferred tax assets had been recognized, amounted to In 1999, the following nonrecurring charges for EUR 220 million, of which EUR 40 million will expire within five restructurings were recognized: years. For an amount of EUR 70 million of losses there is no expiration date.
Pharma (23) Central units (11) Chemicals (7) (41)
70 Note [6] Note [8] Earnings from Nonconsolidated Companies Salaries, Wages, and Social Charges Earnings from nonconsolidated companies were net of a tax charge of EUR 8 million (1998: EUR 10 million). 1999 1998 The nonrecurring after-tax loss in 1999 relates to the divestment of the Company’s participation in ROVIN. The Salaries and wages 2,935 2,617 1998 nonrecurring loss is due to the write-down of Akzo Pension costs 179 171 Nobel’s share in Enka de Colombia. Other social charges 541 484 3,655 3,272 Note [7] Extraordinary Items In 1999 the following extraordinary charges were incurred in Employees respect of Acordis: Average number of employees 1999 1998 Separation and restructuring (275) Loss on divestment (465) Pharma 18,300 16,200 Extraordinary items (740) Coatings 31,400 28,500 Taxes 225 Chemicals 14,000 13,400 (515) Acordis 17,400 16,100 Other units 3,500 4,900 For details on the extraordinary items reference is made to 84,600 79,100 Changes in Consolidated Interests on page 69. Number of employees at December 31 68,000 85,900
CONSOLIDATED BALANCE SHEET
Note [9] Intangible Assets Licences and intellectual Preparation property and start-up Total rights expenses
Situation at December 31, 1998 Cost of acquisition 189 155 34 Amortization (57) (43) (14) Book value 132 112 20
Changes in book value Acquisitions 175 175 Investments 49 41 8 Divestments (25) (24) (1) Amortization (36) (32) (4) Changes in exchange rates972 Total changes 172 167 5
Situation at December 31, 1999 Cost of acquisition 363 326 37 Amortization (59) (47) (12) Book value 304 279 25
AKZO NOBEL ANNUAL REPORT 1999 71 Note [10] Property, Plant and Equipment Construction Assets Plant in progress not used Buildings equipment and in the and and Other prepayments production Total land machinery equipment on projects process
Situation at December 31, 1998 Cost of acquisition 10,996 2,564 6,616 977 696 143 Depreciation (5,685) (936) (4,002) (681) (66) Book value 5,311 1,628 2,614 296 696 77
Changes in book value Acquisitions 125 19 104 2 Acordis deconsolidation (1,238) (237) (869) (53) (74) (5) Divestitures (102) (27) (57) (7) (11) Capital expenditures 797 205 608 100 (134) 18 Depreciation (740) (106) (514) (98) (22) Write-downs (13) (8) (4) (1) Disinvestments (50) (9) (18) (19) (4) Changes in exchange rates 345 102 191 44 8 Total changes (876) (61) (559) (32) (219) (5)
Situation at December 31, 1999 Cost of acquisition 9,270 2,387 5,454 810 477 142 Depreciation (4,835) (820) (3,399) (546) (70) Book value 4,435 1,567 2,055 264 477 72
The book value of property, plant and equipment financed by installment buying and leasing was EUR 18 million at December 31, 1999 (at December 31, 1998: EUR 142 million). Note [11] Financial Noncurrent Assets Nonconsolidated companies
Share in Deferred Total capital Loans tax assets Other
Situation at December 31, 1998 947 439 27 79 402 Acquisitions/deconsolidations/investments 263 32 159 60 12 Divestitures/repayments (121) (60) (11) (50) Equity in earnings 57 57 Dividends received (46) (46) Taxes on income 105 105 Changes in exchange rates 77 43 4 30 Situation at December 31, 1999 1,282 465 179 244 394
Some Akzo Nobel companies are general partners in a number of partnerships that are included in the balance sheet under nonconsolidated companies. Akzo Nobel’s equity in the capital of these partnerships was EUR 124 million at year-end 1999 (at December 31, 1998: EUR 172 million). Equity in 1999 earnings was EUR 22 million, against EUR 22 million in 1998. At year-end 1999, these partnerships accounted for EUR 38 million of short-term receivables from nonconsolidated companies (at December 31, 1998: EUR 20 million).
72 Note [12] Note [15] Inventories Equity Akzo Nobel N.V. 1999 1998 shareholders’ Minority equity interest Raw materials and supplies 614 676 Work in process 372 388 Situation at Finished products and December 31, 1998 1,899 190 goods for resale 1,093 1,222 Issuance of shares 22 Inventory prepayments 12 5 Income for the year 204 25 2,091 2,291 Dividend (286) (23) Changes in minority Note [13] interest in subsidiaries (58) Receivables Goodwill (215) (1) Changes in exchange rates 237 21 1999 1998 Situation at December 31, 1999 1,861 154 Trade receivables 2,231 2,156 Ta xe s 98 164 For details on the changes in Akzo Nobel N.V. shareholders’ Receivables from non- equity see note f to the balance sheet of Akzo Nobel N.V. consolidated companies 203 94 Prepaid expenses 166 129 Note [16] Other receivables 305 325 Provisions 3,003 2,868 Discounted portion (22) (45) 1999 1998 2.981 2,823 Deferred taxes 197 388 For details on receivables from nonconsolidated companies Pension obligations 854 939 reference is made to note 11. Restructuring of activities 345 363 Environmental costs 235 224 Note [14] Other 204 188 Cash and Cash Equivalents 1,835 2,102
1999 1998 The current portion of provisions amounted to EUR 358 million (at December 31, 1998: EUR 371 million). Short-term investments 255 276 Cash on hand and in banks 677 260 Provisions for Pension Obligations 932 536 Most Akzo Nobel companies have established pension plans for their employees in accordance with local legal Short-term investments almost entirely consist of cash loans, requirements and customs. At December 31, 1999, as at time deposits, marketable private borrowings, and December 31, 1998, the accumulated pension benefits were, debentures immediately convertible into cash. on balance, fully covered by independent pension funds, At December 31, 1999, an amount of EUR 236 million was insurances, and provisions in respect of pension obligations. not freely available until January 10, 2000, in connection with the legal finalization of the Acordis divestment. At Provisions for Environmental Costs December 31, 1998, the amount of cash and cash For details on environmental exposures reference is made to equivalents was freely available. note 20.
Other Provisions Other provisions relate to a great variety of risks and commitments.
AKZO NOBEL ANNUAL REPORT 1999 73 Note [17] Note [18] Long-Term Debt Short-Term Borrowings
1999 1998 1999 1998
Debentures: Commercial paper 1,888 1,685 – issued by Akzo Nobel N.V. 1,147 1,147 Debt to credit institutions 908 964 – issued by Borrowings from consolidated companies 966 856 nonconsolidated companies 7 14 Private borrowings 41 53 2,803 2,663 Debt to credit institutions 391 314 Other borrowings 133 302 Commercial paper relates to Akzo Nobel’s commercial paper 2,678 2,672 program in the United States, which at December 31, 1999, as at December 31, 1998, had a maximum of USD 1.0 The total amount of long-term credit facilities arranged by billion (year-end 1999: EUR 1.0 billion; year-end 1998: Akzo Nobel was USD 1.0 billion (at December 31, 1999: EUR 0.9 billion), and to Akzo Nobel’s Euro commercial paper EUR 1.0 billion; at December 31, 1998: EUR 0.9 billion). program, which at December 31, 1999, as at December At the end of 1999 USD 451 million (EUR 450 million) was 31, 1998, had a maximum of EUR 1.0 billion. utilized, whereas these facilities were not used in 1998. Furthermore, the Company has a EUR 1.0 billion short-term For details on financial instruments reference is made to back-up facility. note 21.
Aggregate maturities of long-term debt are as follows: Note [19] Current Liabilities 2001/ after 2000 2004 2004 1999 1998
Debentures: Prepayments by customers 19 18 – issued by Akzo Nobel N.V. 408 739 Suppliers 1,482 1,382 – issued by Debt to non- consolidated companies 691 275 consolidated companies 40 16 Private borrowings 10 13 18 Taxes and social Debt to credit institutions 167 114 110 security contributions 247 264 Other borrowings 42 51 40 Amounts payable to employees 253 267 219 1,277 1,182 Dividends 201 196 Pensions 17 8 In 1999 the average interest rate was 6.0% (1998: 6.3%). Other liabilities 435 363 2,694 2,514 For details on debentures issued by Akzo Nobel N.V. reference is made to note g to the balance sheet of Note [20] Akzo Nobel N.V. Commitments and Contingent Liabilities
Debentures issued by consolidated companies include the Environmental Matters 6% 98/03 USD 500 million bonds (at December 31, 1999: The Company is confronted with substantial costs arising out EUR 499 million; at December 31, 1998: EUR 429 million). of environmental laws and regulations, which include obligations to eliminate or limit the effects on the Private borrowings and debt to credit institutions were environment of the disposal or release of certain wastes or secured to an aggregate amount of EUR 6 million (at substances at various sites. Proceedings involving December 31, 1998: EUR 18 million) by means of environmental matters, such as alleged discharge of mortgages, etc. chemicals or waste materials into the air, water, or soil, are pending against the Company in various countries. For details on financial instruments reference is made to note 21.
74 It is the Company’s policy to accrue and charge against Guarantees relating to nonconsolidated companies totaled earnings environmental cleanup costs when it is probable EUR 65 million (at December 31, 1998: EUR 36 million). that a liability has been incurred and an amount is As general partners in several partnerships, Akzo Nobel reasonably estimable. These accruals are reviewed companies are liable for obligations incurred by these periodically and adjusted, if necessary, as assessments and partnerships. At December 31, 1999, the risk ensuing from cleanups proceed and additional information becomes these liabilities was EUR 83 million (at December 31, 1998: available. Environmental liabilities can change substantially EUR 86 million). by the emergence of additional information on the nature or extent of contamination, the necessity of employing Note [21] particular methods of remediation, actions by governmental Financial Instruments agencies or private parties, or other factors of a similar nature. Cash expenditures often lag behind the period in Foreign Exchange Risk Management which an accrual is recorded by a number of years. The Company routinely enters into forward exchange contracts to hedge transaction exposures. These principally As stated in note 16, the provisions for environmental costs arise with respect to assets and liabilities or firm accounted for in accordance with the aforesaid policies commitments related to sales and purchases. The purpose of aggregated EUR 235 million at December 31, 1999 (at Akzo Nobel’s foreign currency hedging activities is to protect December 31, 1998: EUR 224 million). the Company from the risk that the eventual functional currency net cash flows resulting from trade transactions are While it is not feasible to predict the outcome of all pending adversely affected by changes in exchange rates. environmental exposures, it is reasonably possible that there will be a need for future provisions for environmental costs At December 31, 1999, outstanding contracts to buy which, in management’s opinion based on information currencies totaled EUR 2.2 billion (at December 31, 1998: currently available, would not have a material effect on the EUR 1.1 billion), while contracts to sell currencies totaled Company’s financial position but could be material to the EUR 1.4 billion (at December 31, 1998: EUR 1.0 billion). Company’s results of operations in any one accounting These contracts mainly relate to U.S. dollars, pounds sterling, period. Swedish kronor, Danish kroner, and Swiss francs.
Other Litigation The Company does not use financial instruments to hedge There are pending against Akzo Nobel N.V. and its the translation risk related to equity and earnings of foreign subsidiaries a number of other claims, all of which are subsidiaries and nonconsolidated companies. contested. While the results of litigation cannot be predicted with certainty, management believes, based upon legal Interest Risk Management advice and information received, that the final outcome In principle, the Company manages interest risk by financing of such litigation will not materially affect the consolidated noncurrent assets and a certain portion of current assets financial position. with equity, provisions, and long-term debt with fixed interest rates. The remainder of current assets is financed with short- Commitments term debt, including floating rate short-term borrowings. Purchase commitments for property, plant and equipment In line with this policy, a number of swap contracts have been aggregated EUR 49 million at December 31, 1999. entered into. At December 31, 1998, these commitments totaled EUR 111 million. In addition, the Company has purchase Fixed rate liabilities with an interest rate of 6.3% were commitments for raw materials and supplies incident to the swapped with floating rate EURIBOR-related liabilities for an ordinary conduct of business. amount of EUR 145 million and a remaining maturity of 6 years. Floating rate EURIBOR-related liabilities were Long-term liabilities contracted in respect of leasehold, swapped with fixed rate liabilities with an interest rate of rental, operational leases, research, etc., aggregated 5.3% for an amount of EUR 145 million and a remaining EUR 634 million at December 31, 1999 (at December 31, maturity of 6 years. 1998: EUR 467 million). Payments due within one year amount to EUR 168 million (1998: EUR 127 million); Through interest rate swap contracts, Akzo Nobel has fixed payments due after more than five years amount to the interest costs for an amount of USD 200 million EUR 228 million (1998: EUR 131 million). (year-end 1999: EUR 199 million; year-end 1998: EUR 172 million) at a level of 5.8% until the end of 2005.
AKZO NOBEL ANNUAL REPORT 1999 75 Furthermore, the Company has entered into interest rate cap agreements with a cap rate of 8½% for an amount of USD 200 million (year-end 1999: EUR 199 million; year-end 1998: EUR 172 million) to protect itself against the risk of excessive increases in interest rates on short-term U.S. dollar borrowings. These contracts will expire in 2003.
Akzo Nobel has swap agreements related to a 9% pound sterling loan with an outstanding amount of EUR 51million at December 31, 1999. Under the terms of these agreements Akzo Nobel will pay to financial institutions the euro equivalent of the original amount of the loan and interest on such amount at a fixed rate of 7.6% in exchange for its obligations under this loan agreement.
Finally, the Company has a cross currency swap, expiring in 2007, which converts USD 100 million 7.29% notes into GBP 63 million (EUR 89 million) liabilities with a fixed interest rate of 8%.
Credit Risk CONSOLIDATED STATEMENT OF CASH Under the agreements concluded for its financial FLOWS instruments, the Company is exposed to credit loss in the event of nonperformance by the counterparty to any one of Note [22] these agreements. In the event of a counterparty’s default, The consolidated statement of cash flows is based on a the resulting exposure would equal the difference between comparison of initial and final balance sheet amounts, in (a) the prevailing market interest rate and exchange rate and which currency translation differences, changes in (b) the agreed swap interest and exchange rate. investments in affiliated companies, etc., are eliminated. The Company has no reason to expect nonperformance by For some items the elimination can be derived directly from the counterparties to these agreements, given their high the notes to the balance sheet. For certain other items the credit ratings. elimination is shown below.
Working Long-term Short-term capital1) Provisions debt borrowings
Changes in 1999 balance sheet items (217) (267) 6 140 Eliminations: – changes in exchange rates (202) (93) (153) (163) – changes in consolidation 146 157 (102) 15 Other changes2) 133 (14) Changes in 1999 financial position (140) (217) (249) (8)
1) Inventories and receivables less current liabilities, exclusive of dividends. 2) ”Other changes” concern movements between balance sheet line items.
76 Akzo Nobel N.V. Statement of Income
Millions of euros 1999 1998*
NOTE
Net income from affiliated companies a 241 608 Other net income (37 ) (34 )
Net income 204 574
See notes on page 78.
Akzo Nobel N.V. Balance Sheet
AFTER ALLOCATION OF PROFIT
Millions of euros, December 31 1999 1998*
NOTE Assets Noncurrent assets Financial noncurrent assets c 7,263 6,962
Current assets Receivables d 161 183 Cash and cash equivalents e 338 107
499 290
To ta l 7,762 7,252
Shareholders’ Equity and Liabilities Shareholders’ equity f Subscribed share capital 649 648 Additional paid-in capital 1,784 2,060 Statutory reserves – – Cumulative currency translation differences (572 ) (809 ) Other reserves – –
1,861 1,899
Long-term debt g 4,026 3,637
Short-term debt h 1,875 1,716
To ta l 7,762 7,252
See notes on pages 80 through 83.
* Restated for change in accounting principles. Reference is made to Change in Accounting Principles on page 64.
AKZO NOBEL ANNUAL REPORT 1999 77 Notes to Akzo Nobel N.V. Statement of Income and Balance Sheet
GENERAL Supervisory Board In respect of their functions the members of the Supervisory Unless stated otherwise, all amounts are in millions of euros. Board received in 1999 the following remuneration (in EUR):
Foreign currency has been translated, assets and liabilities Aarnout A. Loudon, have been valued, and net income has been determined, in Chairman 1) 54,400 accordance with the principles of valuation and Frits H. Fentener van Vlissingen, determination of income given on pages 64 and 65. Thus net Deputy Chairman 1) 2) 45,400 income and shareholders’ equity are equal to net income and L. Paul Bremer, III 40,800 shareholders’ equity as shown in the consolidated financial Abraham E. Cohen 2) 45,400 statements on pages 66 and 67. As the financial data of Jean G.A. Gandois 40,800 Akzo Nobel N.V. are included in the consolidated financial Hilmar Kopper 2) 45,400 statements, the statement of income of Akzo Nobel N.V. is Lars H. Thunell, from May 1, 1999 2) 30,300 condensed in conformity with section 402 of Book 2 of the Maarten C. van Veen 41,700 Netherlands Civil Code. Lo C. van Wachem 1) 45,400 Dieter Wendelstadt 1) 45,400 STATEMENT OF INCOME 1) Member of the Nomination and Remuneration Committee. Note [a] 2) Member of the Audit Committee. Net Income from Affiliated Companies Net income from affiliated companies relates to Board of Management Akzo Nobel N.V.’s share in the earnings of its affiliates. The service contracts of the members of the Board of For further details reference is made to note c. Management are determined by the Supervisory Board, which has delegated this task to the Nomination and Note [b] Remuneration Committee. The objective of the Company’s Remuneration of Members of the Supervisory Board remuneration policy is to provide remuneration in a form and the Board of Management of Akzo Nobel N.V. that will motivate and retain the members of the Board of Management as top executives of a major international Total Remuneration company. In the determination and differentiation of the In 1999, the remuneration for members of the Supervisory remuneration level of the Chairman, the Deputy Chairman, Board was EUR 435,000 (1998: EUR 596,000). Former and the other members due allowance is made for the members of the Supervisory Board did not receive any individual’s specific responsibilities. Remuneration is remuneration in 1999, as in 1998. differentiated on a basis comparable to that in other large international companies. To ensure that remuneration is In 1999, remuneration for members of the Board of linked to performance, members of the Board of Management, including expenses for pensions and other Management are granted a variable remuneration such obligations, amounting to EUR 5,084,000 (1998: component related to both Company and individual targets. EUR 5,536,000) was charged to Akzo Nobel N.V. and its subsidiaries. The charges for former members of the Board Effective May 1, 1999, the fixed salary component was of Management amounted to EUR 118,000 (1998: EUR determined at EUR 490,000 for the Chairman, 34,000). EUR 438,000 for the Deputy Chairman, and EUR 397,000 for the other members. For 1999 the members of the Board of Management received the following salaries and performance-related bonuses (in EUR):
Salary Bonus Total
Cees J.A. van Lede, Chairman 466,600 276,800 743,400 Fritz W. Fröhlich, Deputy Chairman 426,100 224,600 650,700 Paul K. Brons 381,200 181,500 562,700 Ove H. Mattsson 381,200 181,500 562,700 Rudy M.J. van der Meer 381,200 181,500 562,700
78 Pension Scheme The conditional options issued in 1999 have an exercise Accrued pension benefits depend on service years, price of EUR 42.50 and the expiry date is April 25, 2004. membership years of the Board of Management, retirement Given the nature of the revised option scheme, all options age, and the customs and rules in the respective countries of granted in 1999 are still outstanding at December 31, 1999. origin. Members of the Board of Management normally retire at the age of 62. In 1999, the members of the Board Options issued of Management did not pay any pension contributions. and outstanding
Other Benefits Cees J.A. van Lede 36,000 Other benefits granted to the members of the Board of Fritz W. Fröhlich 27,000 Management are in conformity with those customary Paul K. Brons 24,000 elsewhere. Ove H. Mattsson 24,000 Rudy M.J. van der Meer 24,000 Option scheme To ta l 135,000 For a description of the option scheme until 1998 and of the revised option scheme reference is made to note f.
The aggregate number of options held by the present members of the Board of Management under the scheme until 1998 (unconditional options) is as follows:
Exercise Options outstanding Year of price, Options at December 31, Expiry date issue in EUR issued 1999 1998
April 27, 2001 1996 22.45 84,860 24,328 32,328 April 28, 2002 1997 28.10 82,832 50,712 50,712 April 28, 2003 1998 47.40 132,000 132,000 132,000 To ta l 207,040 215,040
Shares of Akzo Nobel N.V. held by the Members of the Supervisory Board and the Board of Management At December 31, 1999, the aggregate number of Akzo Nobel N.V. common shares held by the members of Supervisory Board was 51,794, while they held no options. At December 31, 1999, the aggregate number of Akzo Nobel N.V. common shares held by the members of the Board of Management was 3,204, while they held no options other than the aforementioned stock options.
AKZO NOBEL ANNUAL REPORT 1999 79 BALANCE SHEET
Note [c] Financial Noncurrent Assets Consolidated Nonconsolidated companies companies Other financial Share in Share in noncurrent Total capital Loans* capital Loans assets
Situation at December 31, 1998 6,962 1,700 5,225 24 13 Investments/divestitures 409 426 (17) Equity in earnings 241 236 5 Dividends received (988) (988) Loans granted 2,158 2,020 138 Repayment of loans (1,541) (1,539) (2) Changes in exchange rates 237 207 30 Goodwill (215) (215) Situation at December 31, 1999 7,263 1,366 5,736 12 138 11
* Loans to these companies have no fixed repayment schedule.
Note [d] Receivables
1999 1998
Receivables from consolidated companies 83 59 Receivables from nonconsolidated companies 21 Ta xe s 8 5 Other receivables 57 39 161 183
Note [e] Cash and Cash Equivalents
1999 1998
Short-term investments 91 102 Cash on hand and in banks 247 5 338 107
At December 31, 1999, an amount of EUR 236 million was not freely available until January 10, 2000, in connection with the legal finalization of the Acordis divestment. At December 31, 1998, the amount of cash and cash equivalents was freely available.
80 Note [f] Shareholders’ Equity
Additional Cumulative Share- Subscribed paid-in Statutory translation Other holders’ share capital capital reserves differences reserves equity
Situation at December 31, 1997 647 2,606 – (591) 1,510 4,172 Issue of common shares 1 3 4 Retained earnings 296 296 Goodwill (549) (1,806) (2,355) Changes in exchange rates in respect of affiliated companies (218) (218) Situation at December 31, 1998 648 2,060 – (809) – 1,899 Issue of common shares 1 21 22 Income for the year 204 204 Dividend (286) (286) Goodwill (11) (204) (215) Changes in exchange rates in respect of affiliated companies 237 237 Situation at December 31, 1999 649 1,784 – (572) – 1,861
Subscribed Share Capital Authorized capital stock of Akzo Nobel N.V. is NLG 4,000,048,000 and consists of 48 priority shares of NLG 1,000 and 600 million common shares of NLG 5 and 200 million cumulative preferred shares of NLG 5. Subscribed share capital consists of 48 priority shares, 285,885,524 common shares and no preferred shares. In 1999, 509,024 common shares were issued in exchange for shares in Acordis AG, Germany, and 56,300 common shares were issued in connection with the exercise of options.
Stock Options In 1999, Akzo Nobel’s stock option scheme was revised. Options have been granted to all members of the Board of Management, Senior Vice Presidents, and Executives, except in the United States where a separate scheme is in operation. Altogether about 800 persons are entitled to options. The options expire after five years and may not be exercised during the first three years. At the end of this three- year period the holders of options may choose for options or stock appreciation rights or both. No financing facilities exist for option rights or tax payable thereon.
The options issued under the scheme until 1998 were exercisable immediately upon having been granted.
One option entitles the holder thereof to buy one common share of NLG 5.00 par value. The exercise price of newly granted options is the Amsterdam Exchanges closing price on the first day that the Akzo Nobel share is quoted ex dividend.
The number of options lapsed in 1999 was 21,600 (1998: nil).
AKZO NOBEL ANNUAL REPORT 1999 81 Stock Options Exercise Options outstanding at Year of price Options December 31, Expiry date issue in EUR issued 1999 1998
Unconditional options May 5, 1999 1994 25.35 193,256 17,284 April 27, 2000 1995 20.40 317,912 14,156 21,664 April 27, 2001 1996 22.45 333,360 65,336 77,064 April 28, 2002 1997 28.10 277,920 116,060 124,664 April 28, 2003 1998 47.40 462,200 448,600 462,200 644,152 702,876 Conditional options April 26, 2004 1999 42.50 1,163,400 1,155,400 1,799,552 702,876
Stock options granted to the Board of Management are included in the above schedule. For further details reference is made to note b.
Additional Paid-in Capital At least EUR 1,190 million of additional paid-in capital (at December 31, 1998: EUR 1,168 million) can be considered free from income tax within the meaning of the Netherlands 1964 Income Tax Law.
Statutory Reserves This item includes the statutory reserves relating to the earnings retained by affiliated companies after 1983. Goodwill paid by affiliated companies is deducted from the statutory reserves. The statutory reserves have been calculated by the so-called collective method.
Note [g] Long-Term Debt
1999 1998
Debentures 1,147 1,147 Debt to consolidated companies 2,877 2,489 Other borrowings 2 1 4,026 3,637
Debentures
1999 1998
8% 1992/02 136 136 6⅜% 1993/03 136 136 7% 1995/05 227 227 5¾% 1996/01 136 136 5⅜% 1998/08 512 512 1,147 1,147
82 Debt to Consolidated Companies Note [i] Borrowings from these companies have no fixed repayment Liabilities Not Shown in the Balance Sheet schedule. Interest charged on these borrowings averaged 4.6% in 1999 (1998: 4.5%). Joint and Several Liability; Guarantees Akzo Nobel N.V. has declared in writing that it accepts joint Note [h] and several liability for contractual debts of Netherlands Short-Term Debt consolidated companies. These debts, at December 31, 1999 aggregating EUR 1.0 billion (at December 31, 1998: 1999 1998 EUR 0.8 billion), are included in the consolidated balance sheet. Debt to credit institutions 596 614 Commercial paper 950 824 Additionally, guarantees were issued in behalf of Taxes and social consolidated companies in the amount of EUR 2.6 billion security contributions 53 8 (1998: EUR 2.2 billion), including guarantees issued by Debt to consolidated companies 6 26 Akzo Nobel N.V. in relation to the exemption of Organon Borrowings from Teknika Limited, Organon Ireland Limited, Nourypharma nonconsolidated companies 6 10 Ireland Limited, Intervet Ireland Limited, Intervet Dividend 201 195 Laboratories Limited, Organon Research and Development Other liabilities 63 39 Limited, and Akzo Nobel Decorative Coatings Ireland 1,875 1,716 Limited, under section 17 of the Companies (Amendment) Act 1986 Ireland. Commercial paper relates to Akzo Nobel’s Euro commercial paper program, which at December 31, 1999, had a Guarantees relating to nonconsolidated companies maximum of EUR 1.0 billion (as at December 31, 1998). amounted to EUR 65 million (1998 EUR 36 million).
Arnhem, February 24, 2000
The Board of Management C.J.A. van Lede F.W. Fröhlich P.K. Brons O.H. Mattsson R.M.J. van der Meer
The Supervisory Board A.A. Loudon F.H. Fentener van Vlissingen L.P. Bremer, III A.E. Cohen J.G.A. Gandois H. Kopper L.H. Thunell M.C. van Veen L.C. van Wachem D. Wendelstadt
AKZO NOBEL ANNUAL REPORT 1999 83 OTHER INFORMATION
AUDITORS’ REPORT
We have audited the 1999 financial statements of Akzo Nobel N.V., Arnhem, as included in this report. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the Netherlands. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1999, and the results of its operations for the year then ended in accordance with accounting principles generally accepted in the Netherlands and comply with the financial reporting requirements included in Part 9, Book 2 of the Netherlands Civil Code.
Arnhem, February 24, 2000
KPMG Accountants N.V.
84 PROFIT ALLOCATION AND DISTRIBUTIONS IN ACCORDANCE WITH THE ARTICLES OF ASSOCIATION
Article 43 43.6 The Board of Management shall be authorized to determine, with the approval of the Supervisory Board, what share of profit remaining after application of the provisions of the foregoing paragraphs shall be carried to reserves. The remaining profit shall be placed at the disposal of the General Meeting of Shareholders, with due observance of the provisions of paragraph 7, it being provided that no further dividends shall be paid on the preferred shares.
43.7 From the remaining profit, the following distributions shall, to the extent possible, be made as follows: (a) to the holders of priority shares: six percent per share or the statutory interest referred to in paragraph 1 of article 13, whichever is lower, plus any accrued and unpaid dividends; (b) to the holders of common shares: a dividend of such an amount per share as the remaining profit, less the aforesaid dividends and less such amounts as the General Meeting of Shareholders may decide to carry to reserves, shall permit.
43.8 Without prejudice to the provisions of paragraph 4 of this article and of paragraph 4 of article 20, the holders of common shares shall, to the exclusion of everyone else, be entitled to distributions made from reserves accrued by virtue of the provision of paragraph 7b of this article.
43.9 Without prejudice to the provisions of article 42 and paragraph 8 of this article, the General Meeting of Shareholders may decide on the utilization of reserves only on the proposal of the Board of Management approved by the Supervisory Board.
Article 44 44.7 Cash dividends by virtue of paragraph 4 of article 20, article 42, or article 43 that have not been collected within five years of the commencement of the second day on which they became due and payable shall revert to the Company.
AKZO NOBEL ANNUAL REPORT 1999 85 PROPOSAL FOR PROFIT ALLOCATION
With due observance of article 43, paragraph 7, of the Articles of Association, it is proposed that net income of EUR 204 million is carried to other reserves.
Furthermore, with due observance of article 43, paragraph 9, it is proposed that dividend on priority shares of EUR 1,307 and on common shares of EUR 286 million will be paid out of that portion of additional paid-in capital, which cannot be considered free from income tax within the meaning of the Netherlands 1964 Income Tax Law.
Following the acceptance of this proposal, the holders of common shares will receive a dividend of EUR 1.00 per share of NLG 5, of which EUR 0.30 was paid earlier as an interim dividend. The final dividend of EUR 0.70 will be made available from May 15, 2000.
SPECIAL RIGHTS TO HOLDERS OF PRIORITY SHARES
The priority shares are held by ”AKZO NOBEL STICHTING” (Akzo Nobel Foundation), whose board is composed of the members of the Supervisory Board and the Board of Management. They each have one vote on the board of the Foundation, thus complying with the provisions of article 10 of annex X of the AEX Listing and Issuing Rules.
The Meeting of Holders of Priority Shares has the right to draw up binding lists of nominees for appointment to the Supervisory Board and the Board of Management. Amendments of the Articles of Association are subject to the approval of this meeting.
86 FINANCIAL SUMMARY
Consolidated Statement of Income
Millions of euros 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
Net sales 14,432 12,482 10,914 10,182 9,751 10,078 7,491 7,584 7,647 7,826
Operating income before nonrecurring items 1,364 1,242 1,121 922 895 877 486 539 525 572 Nonrecurring items (41) (165) (3) Operating income, after nonrecurring items 1,323 1,077 1,118 922 895 877 486 539 525 572 Financing charges (275) (207))))))) (124 (119 (118 (129 (99 (108 (126)) (167 Ta xe s (344) (303))))))))) (330 (268 (271 (224 (123 (129 (120 (127 Earnings from nonconsolidated companies 40 23 54 41 62 46 37 30 29 47 Earnings from normal operations, after taxes 744 590 718 576 568 570 301 332 308 325 Extraordinary items after taxes (515) (16) (36) (66 ))) (30 (50 (29) Earnings before minority interest 229 590 718 576 552 534 235 302 258 296 Minority interest (25) (16))))))) (17 (16 (20 (17 (2 (9 5 5 Net income 204 574 701 560 532 517 233 293 263 301
Net income excluding extra- ordinary and nonrecurring items 759 703 700 560 548 553 299 323 313 330
Common shares, in millions at December 31 285.9 285.3 285.2 284.7 284.3 284.3 215.9 184.0 183.8 177.7 Dividend 286 278 275 242 226 226 154 136 136 131
Per common share, in EUR Net income 0.71 2.01 2.46 1.97 1.87 1.82 1.24 1.59 1.43 1.69 Net income excluding extra- ordinary and nonrecurring items 2.66 2.46 2.46 1.97 1.93 1.95 1.59 1.76 1.71 1.86 Dividend 1.00 0.98 0.97 0.85 0.79 0.79 0.74* 0.74 0.74 0.74 Shareholders’ equity 6.51 6.66 14.63 12.49 10.73 10.32 12.93 12.52 11.75 11.86
Number of employees at December 31 68,000 85,900 68,900 70,700 69,800 70,400 60,700 62,500 65,200 69,800 Salaries, wages, and social charges 3,655 3,272 2,897 2,750 2,685 2,735 2,306 2,305 2,311 2,300 Ditto, as % of net sales 25.3 26.2 26.5 27.0 27.5 27.1 30.8 30.4 30.2 29.4
Ratios Operating income before nonrecurring items as percentage of net sales 9.5 10.0 10.3 9.1 9.2 8.7 6.5 7.1 6.9 7.3 Operating income before nonrecurring items as percentage of invested capital 15.5 16.2 17.0 15.1 15.8 15.6 11.5 13.2 12.7 13.7 Net income excluding extraordinary and nonrecurring items as percentage of shareholders’ equity 40.4 23.2 18.1 17.0 18.3 19.3 11.7 14.5 14.7 16.0
* Holders of the 31.5 million common shares placed in November 1993 were only entitled to the final dividend of EUR 0.57 per share. ▼ For definitions of financial ratios and
AKZO NOBEL ANNUAL REPORT 1999 87 concepts see back cover foldout. Consolidated Balance Sheet
Millions of euros, December 31 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
Intangible assets 304 132 107 76 66 30 Property, plant and equipment 4,435 5,311 4,420 4,304 3,848 3,808 2,886 2,656 2,661 2,670 Financial noncurrent assets 1,282 947 848 787 693 686 512 616 455 435 Noncurrent assets 6,021 6,390 5,375 5,167 4,607 4,524 3,398 3,272 3,116 3,105
Inventories 2,091 2,291 1,835 1,760 1,648 1,541 1,317 1,269 1,266 1,300 Receivables 2,981 2,823 2,267 1,981 1,907 1,865 1,429 1,341 1,414 1,433 Cash and cash equivalents 932 536 317 404 317 330 845 299 368 370 Current assets 6,004 5,650 4,419 4,145 3,872 3,736 3,591 2,909 3,048 3,103
Total assets 12,025 12,040 9,794 9,312 8,479 8,260 6,989 6,181 6,164 6,208
Shareholders’ equity 1,861 1,899 4,172 3,555 3,052 2,935 2,792 2,304 2,161 2,106 Minority interest 154 190 118 108 88 83 70 64 64 87 Equity 2,015 2,089 4,290 3,663 3,140 3,018 2,862 2,368 2,225 2,193
Provisions 1,835 2,102 1,697 1,594 1,528 1,403 1,077 1,100 1,101 1,151
Long-term debt 2,678 2,672 914 975 1,233 1,424 1,061 817 825 945
Short-term borrowings 2,803 2,663 778 1,128 735 500 643 638 745 530 Current liabilities 2,694 2,514 2,115 1,952 1,843 1,915 1,346 1,258 1,268 1,389 Short-term debt 5,497 5,177 2,893 3,080 2,578 2,415 1,989 1,896 2,013 1,919
Total equity and liabilities 12,025 12,040 9,794 9,312 8,479 8,260 6,989 6,181 6,164 6,208
Invested capital Of consolidated companies 7,755 8,524 6,783 6,395 5,794 5,519 4,361 4,062 4,137 4,096 In nonconsolidated companies 644 466 579 561 525 496 437 562 391 353 To ta l 8,399 8,990 7,362 6,956 6,319 6,015 4,798 4,624 4,528 4,449
Property, plant and equipment Capital expenditures 797 819 641 836 750 741 531 423 457 512 Depreciation 740 661 587 537 488 516 402 395 398 393
Ratios Net sales/invested capital 1.64 1.63 1.66 1.67 1.72 1.78 1.78 1.85 1.86 1.87 Gearing 2.26 2.30 0.32 0.46 0.53 0.53 0.30 0.49 0.54 0.50 Equity/noncurrent assets 0.33 0.33 0.80 0.71 0.68 0.67 0.84 0.72 0.71 0.71 Inventories and receivables/ current liabilities 1.88 2.03 1.94 1.92 1.93 1.78 2.04 2.07 2.11 1.97 ▼ For definitions of financial ratios and 88 concepts see back cover foldout. Business Segment Statistics
Millions of euros 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
Pharma Net sales 2,865 2,323 2,094 1,793 1,713 1,665 1,552 1,473 1,390 1,259 Operating income1) 595 480 422 361 340 297 268 241 233 195 Invested capital2) 2,086 1,406 1,251 1,085 895 818 808 733 673 607 Operating income1) – as percentage of net sales 20.8 20.7 20.2 20.1 19.9 17.9 17.2 16.4 16.8 15.5 – as percentage of invested capital 36.4 36.1 36.2 36.4 39.7 36.6 34.7 34.3 36.4 32.2 Gross cash flow 736 586 512 441 408 361 323 291 280 238 Expenditures for PP&E 199 173 107 107 124 108 103 88 81 67 Average number of employees 18,300 16,200 15,500 15,100 14,300 14,100 14,000 13,600 13,200 12,800
Coatings Net sales 5,504 4,765 3,804 3,374 3,104 3,125 1,826 1,843 1,748 1,783 Operating income1) 466 401 341 269 215 236 90 92 100 114 Invested capital2) 2,308 2,264 1,540 1,416 1,349 1,270 850 864 853 764 Operating income1) – as percentage of net sales 8.5 8.4 9.0 8.0 6.9 7.6 4.9 5.0 5.7 6.4 – as percentage of invested capital 20.4 21.1 23.1 19.4 16.4 18.1 10.5 10.7 12.4 14.8 Gross cash flow 623 534 450 368 306 331 146 147 152 161 Expenditures for PP&E 162 194 130 115 115 106 78 65 77 77 Average number of employees 31,400 28,500 22,900 21,800 21,500 21,900 14,200 15,000 14,500 15,300
Chemicals Net sales 3,835 3,394 3,438 3,492 3,332 3,586 2,639 2,573 2,603 2,614 Operating income1) 367 320 331 261 276 323 159 163 149 172 Invested capital2) 2,704 2,583 2,655 2,589 2,319 2,351 1,577 1,546 1,577 1,571 Operating income1) – as percentage of net sales 9.6 9.4 9.6 7.5 8.3 9.0 6.0 6.3 5.7 6.6 – as percentage of invested capital 13.9 12.2 12.6 10.7 11.8 13.7 10.2 10.4 9.5 10.7 Gross cash flow 656 584 583 491 479 550 323 326 311 329 Expenditures for PP&E 304 278 263 423 342 333 192 140 155 204 Average number of employees 14,000 13,400 13,700 14,900 15,300 16,000 12,900 13,400 14,400 14,700
Acordis/ Fibers Net sales 2,242 1,947 1,606 1,540 1,626 1,645 1,470 1,707 1,934 2,202 Operating income1) (62) 64 42 37 72 36 (10) 58 46 99 Invested capital2) 1,673 1,148 1,155 1,159 961 1,204 995 1,076 1,241 Operating income1) – as percentage of net sales (2.8) 3.3 2.6 2.4 4.4 2.2 (0.6) 3.4 2.4 4.5 – as percentage of invested capital (3.7) 4.5 3.7 3.2 6.8 3.4 (0.9) 5.6 4.0 7.9 Gross cash flow 98 198 152 138 174 142 102 172 174 234 Expenditures for PP&E 107 135 83 144 140 146 141 113 118 133 Average number of employees 17,400 16,100 13,700 14,500 15,200 16,700 18,500 20,100 23,500 26,200
1) Before nonrecurring items. 2) At December 31.
AKZO NOBEL ANNUAL REPORT 1999 89 Regional Statistics
Millions of euros 1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
The Netherlands USA and Canada Net sales by destination 862 797 788 799 744 3,382 2,850 2,446 2,299 2,087 Net sales by origin 2,583 2,556 2,606 2,683 2,708 3,162 2,620 2,305 2,139 1,963 Operating income1) 316 273 248 245 220 253 216 177 142 141 Expenditures for PP&E 214 196 163 239 305 144 149 134 205 162 Invested capital2) 1,840 1,929 1,729 1,732 1,689 1,439 1,638 1,580 1,544 1,384 Number of employees2) 12,900 18,100 17,600 17,800 18,400 10,100 12,600 9,500 11,100 11,400
Germany Latin America Net sales by destination 1,436 1,339 1,212 1,266 1,343 841 790 709 640 534 Net sales by origin 1,944 1,627 1,480 1,378 1,391 566 565 509 457 424 Operating income1) 58 109 94 71 107 53 43 57 39 40 Expenditures for PP&E 68 74 54 79 81 36 31 40 52 41 Invested capital2) 101 848 769 709 675 415 451 455 390 307 Number of employees2) 5,100 12,000 10,700 11,200 11,700 4,500 5,100 4,800 5,200 5,100
Sweden Asia Net sales by destination 524 518 496 495 479 1,223 756 715 635 568 Net sales by origin 1,003 984 864 868 845 687 398 311 227 208 Operating income1) 68 99 107 82 118 55 20 24 26 22 Expenditures for PP&E 70 80 99 156 72 35 38 29 20 11 Invested capital2) 865 785 762 675 543 449 296 166 148 118 Number of employees2) 4,700 4,900 4,700 4,700 4,800 7,700 6,000 4,100 3,700 2,400
United Kingdom Other regions Net sales by destination 1,164 1,000 802 653 703 673 517 379 383 419 Net sales by origin 1,406 955 597 496 444 267 170 93 112 124 Operating income1) 30 56 50 25 27 33 21 11 17 21 Expenditures for PP&E 69 89 25 13 12 40 15 9 2 8 Invested capital2) 820 1,184 245 227 200 177 120 55 47 55 Number of employees2) 5,700 9,600 3,800 3,900 3,900 1,900 1,600 500 1,000 1,100
Other European countries Net sales by destination 4,327 3,915 3,367 3,012 2,874 Net sales by origin 2,814 2,607 2,149 1,822 1,644 Operating income1) 498 405 353 275 199 Expenditures for PP&E 121 147 88 71 58 Invested capital2) 1,649 1,273 1,021 923 823 Number of employees2) 15,400 16,000 13,200 12,100 11,000
1) Before nonrecurring items. 2) At December 31. ▼
For definitions of financial ratios and 90 concepts see back cover foldout. FINANCIAL CALENDAR
- Report for the 1st quarter 2000 April 25, 2000
- Annual Meeting of Shareholders 1999 April 26, 2000
- Quotation ex 1999 final dividend April 28, 2000
- Payment of 1999 final dividend May 15, 2000
- Report for the 2nd quarter 2000 July 26, 2000
- Report for the 3rd quarter 2000 October 25, 2000
- Quotation ex 2000 interim dividend October 26, 2000
- Payment of 2000 interim dividend November 13, 2000
- Report for the year 2000 February 23, 2001
- Annual Meeting of Shareholders 2000 April 26, 2001
Akzo Nobel N.V. Investor Relations Department Tel. +31 26 366 4317 Fax +31 26 442 4909 E-mail [email protected]
AKZO NOBEL ANNUAL REPORT 1999 91 Akzo Nobel N.V. Velperweg 76 P.O. Box 9300 6800 SB Arnhem, the Netherlands Tel. +31 26 366 4433 Fax +31 26 366 3250 E-mail [email protected] Internet http://www.akzonobel.com
The collective terms ”Akzo Nobel” and ”the Company” are sometimes used for convenience where reference is made to Akzo Nobel N.V. and its consolidated companies in general. These terms are also used if no useful purpose is served by identifying the particular company or companies.
The symbol ® indicates trademarks registered in one or more countries.
Design Dedato, Amsterdam, the Netherlands Printing and typesetting Tesink bv, Zutphen, the Netherlands
92 COMPANY STATEMENT Cover: Fertilized human egg OUR COMPANY (magnification 1,000 X) Akzo Nobel is a multicultural company. We are market-driven and technology- based, serving customers throughout the world with healthcare products, coatings, and chemicals.
Akzo Nobel conducts its diversified activities through business units, which report directly to the Board of Management.
We maintain a product portfolio with leading positions in important market segments.
OUR PEOPLE Akzo Nobel regards people as its most important resource. We foster leadership, individual accountability, and teamwork.
Our employees are professionals whose entrepreneurial behavior is result-oriented and guided by personal integrity. They strive for the success of their own units in the interest of Akzo Nobel as a global company.
In return, our employees can count on opportunities for individual and professional development in an international working environment. We offer them rewarding and challenging assignments with room for initiative.
OUR COMMITMENS We will focus our efforts on the success of our customers. We will provide competitive returns on our shareholders’ investments. We will create an attractive working environment for our employees. We will conduct our activities in a socially responsible manner.
OUR AMBITION To be the first choice of customers, shareholders, and employees, and to be a respected member of society. Definitions of certain financial ratios and concepts used in this Annual Report (please turn over)